Correlation Between CarsalesCom and Genuine Parts

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

By analyzing existing cross correlation between CarsalesCom and Genuine Parts, you can compare the effects of market volatilities on CarsalesCom and Genuine Parts 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 CarsalesCom with a short position of Genuine Parts. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarsalesCom and Genuine Parts.

Diversification Opportunities for CarsalesCom and Genuine Parts

-0.07

Correlation Coefficient

CarsalesCom  Genuine Parts

Good diversification

The 3 months correlation between CarsalesCom and Genuine is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and CarsalesCom 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of CarsalesCom i.e., CarsalesCom and Genuine Parts go up and down completely randomly.

Pair Corralation between CarsalesCom and Genuine Parts

Assuming the 90 days horizon CarsalesCom is expected to generate 0.82 times more return on investment than Genuine Parts. However, CarsalesCom is 1.22 times less risky than Genuine Parts. It trades about 0.1 of its potential returns per unit of risk. Genuine Parts is currently generating about -0.01 per unit of risk. If you would invest  1,480  in CarsalesCom on September 12, 2024 and sell it today you would earn a total of  960.00  from holding CarsalesCom or generate 64.86% return on investment over 90 days.

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

CarsalesCom  vs.  Genuine Parts

CarsalesCom

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Genuine Parts

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CarsalesCom and Genuine Parts

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

The idea behind CarsalesCom and Genuine Parts 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.