Correlation Between Carsales and Liaoning Port

Can any of the company-specific risk be diversified away by investing in both Carsales and Liaoning Port 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 Liaoning Port into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CarsalesCom and Liaoning Port CoLtd, you can compare the effects of market volatilities on Carsales and Liaoning Port 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 Liaoning Port. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Liaoning Port.

Diversification Opportunities for Carsales and Liaoning Port

0.35

Correlation Coefficient

Carsales  Liaoning Port

Weak diversification

The 3 months correlation between Carsales and Liaoning is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Liaoning Port CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Port CoLtd 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 Liaoning Port. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Port CoLtd has no effect on the direction of Carsales i.e., Carsales and Liaoning Port go up and down completely randomly.

Pair Corralation between Carsales and Liaoning Port

Assuming the 90 days horizon Carsales is expected to generate 3.79 times less return on investment than Liaoning Port. But when comparing it to its historical volatility, CarsalesCom is 2.78 times less risky than Liaoning Port. It trades about 0.05 of its potential returns per unit of risk. Liaoning Port CoLtd is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4.35  in Liaoning Port CoLtd on October 9, 2024 and sell it today you would earn a total of  3.40  from holding Liaoning Port CoLtd or generate 78.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

CarsalesCom  vs.  Liaoning Port CoLtd

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.

Liaoning Port CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Carsales and Liaoning Port

The main advantage of trading using opposite Carsales and Liaoning Port positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Liaoning Port 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 Liaoning Port will offset losses from the drop in Liaoning Port's long position.

The idea behind CarsalesCom and Liaoning Port CoLtd 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.