Correlation Between Carsales and Papa Johns

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

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

Diversification Opportunities for Carsales and Papa Johns

0.24

Correlation Coefficient

Carsales  Papa Johns

Modest diversification

The 3 months correlation between Carsales and Papa is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns International 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 Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Carsales i.e., Carsales and Papa Johns go up and down completely randomly.

Pair Corralation between Carsales and Papa Johns

Assuming the 90 days horizon CarsalesCom is expected to generate 0.45 times more return on investment than Papa Johns. However, CarsalesCom is 2.2 times less risky than Papa Johns. It trades about -0.04 of its potential returns per unit of risk. Papa Johns International is currently generating about -0.02 per unit of risk. If you would invest  2,280  in CarsalesCom on October 10, 2024 and sell it today you would lose (80.00) from holding CarsalesCom or give up 3.51% of portfolio value over 90 days.

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

CarsalesCom  vs.  Papa Johns International

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Papa Johns International

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind CarsalesCom and Papa Johns International 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..