Correlation Between Carsales and Adobe

Can any of the company-specific risk be diversified away by investing in both Carsales and Adobe at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Carsales and Adobe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CarsalesCom and Adobe Inc, you can compare the effects of market volatilities on Carsales and Adobe and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Carsales with a short position of Adobe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Adobe.

Diversification Opportunities for Carsales and Adobe

0.78

Correlation Coefficient

Carsales  Adobe

Poor diversification

The 3 months correlation between Carsales and Adobe is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Adobe Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Inc and Carsales is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on CarsalesCom are associated (or correlated) with Adobe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Inc has no effect on the direction of Carsales i.e., Carsales and Adobe go up and down completely randomly.

Pair Corralation between Carsales and Adobe

Assuming the 90 days horizon CarsalesCom is expected to generate 0.37 times more return on investment than Adobe. However, CarsalesCom is 2.67 times less risky than Adobe. It trades about -0.49 of its potential returns per unit of risk. Adobe Inc is currently generating about -0.41 per unit of risk. If you would invest  2,440  in CarsalesCom on October 9, 2024 and sell it today you would lose (240.00) from holding CarsalesCom or give up 9.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

CarsalesCom  vs.  Adobe Inc

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Adobe Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adobe Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Carsales and Adobe

The main advantage of trading using opposite Carsales and Adobe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Adobe can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Adobe will offset losses from the drop in Adobe's long position.

The idea behind CarsalesCom and Adobe Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .