Correlation Between Carsales and Safety Insurance

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

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

Diversification Opportunities for Carsales and Safety Insurance

0.5

Correlation Coefficient

Carsales  Safety Insurance

Very weak diversification

The 3 months correlation between Carsales and Safety is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance 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 Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of Carsales i.e., Carsales and Safety Insurance go up and down completely randomly.

Pair Corralation between Carsales and Safety Insurance

Assuming the 90 days horizon CarsalesCom is expected to under-perform the Safety Insurance. In addition to that, Carsales is 1.11 times more volatile than Safety Insurance Group. It trades about -0.12 of its total potential returns per unit of risk. Safety Insurance Group is currently generating about -0.08 per unit of volatility. If you would invest  7,761  in Safety Insurance Group on December 21, 2024 and sell it today you would lose (611.00) from holding Safety Insurance Group or give up 7.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

CarsalesCom  vs.  Safety Insurance Group

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Safety Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Safety Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Pair Trading with Carsales and Safety Insurance

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

The idea behind CarsalesCom and Safety Insurance Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.