Correlation Between Carsales and FORTEC Elektronik

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

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

Diversification Opportunities for Carsales and FORTEC Elektronik

0.04

Correlation Coefficient

Carsales  FORTEC Elektronik

Significant diversification

The 3 months correlation between Carsales and FORTEC is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and FORTEC Elektronik AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FORTEC Elektronik 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 FORTEC Elektronik. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FORTEC Elektronik has no effect on the direction of Carsales i.e., Carsales and FORTEC Elektronik go up and down completely randomly.

Pair Corralation between Carsales and FORTEC Elektronik

Assuming the 90 days horizon CarsalesCom is expected to under-perform the FORTEC Elektronik. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 1.73 times less risky than FORTEC Elektronik. The stock trades about -0.53 of its potential returns per unit of risk. The FORTEC Elektronik AG is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,950  in FORTEC Elektronik AG on October 8, 2024 and sell it today you would earn a total of  0.00  from holding FORTEC Elektronik AG or generate 0.0% return on investment over 90 days.

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

CarsalesCom  vs.  FORTEC Elektronik AG

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.

FORTEC Elektronik

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FORTEC Elektronik AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FORTEC Elektronik is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Carsales and FORTEC Elektronik

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

The idea behind CarsalesCom and FORTEC Elektronik AG 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.