Correlation Between Carsales and Danaher

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

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

Diversification Opportunities for Carsales and Danaher

-0.35

Correlation Coefficient

Carsales  Danaher

Very good diversification

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

Pair Corralation between Carsales and Danaher

Assuming the 90 days horizon CarsalesCom is expected to generate 1.15 times more return on investment than Danaher. However, Carsales is 1.15 times more volatile than Danaher. It trades about 0.05 of its potential returns per unit of risk. Danaher is currently generating about 0.03 per unit of risk. If you would invest  1,923  in CarsalesCom on October 24, 2024 and sell it today you would earn a total of  357.00  from holding CarsalesCom or generate 18.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

CarsalesCom  vs.  Danaher

CarsalesCom

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Danaher

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danaher has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Danaher is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Carsales and Danaher

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

The idea behind CarsalesCom and Danaher 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.