Correlation Between Carsales and Manulife Financial

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

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

Diversification Opportunities for Carsales and Manulife Financial

0.43

Correlation Coefficient

Carsales  Manulife Financial

Very weak diversification

The 3 months correlation between Carsales and Manulife is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Manulife Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial 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 Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial has no effect on the direction of Carsales i.e., Carsales and Manulife Financial go up and down completely randomly.

Pair Corralation between Carsales and Manulife Financial

Assuming the 90 days horizon CarsalesCom is expected to under-perform the Manulife Financial. In addition to that, Carsales is 1.06 times more volatile than Manulife Financial. It trades about -0.1 of its total potential returns per unit of risk. Manulife Financial is currently generating about 0.01 per unit of volatility. If you would invest  2,882  in Manulife Financial on December 29, 2024 and sell it today you would lose (6.00) from holding Manulife Financial or give up 0.21% of portfolio value over 90 days.

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

CarsalesCom  vs.  Manulife Financial

CarsalesCom

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Manulife Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Manulife Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Manulife Financial 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 Manulife Financial

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

The idea behind CarsalesCom and Manulife Financial 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.