Correlation Between Carsales and TRAVEL +

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

By analyzing existing cross correlation between CarsalesCom and TRAVEL LEISURE DL 01, you can compare the effects of market volatilities on Carsales and TRAVEL + 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 TRAVEL +. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and TRAVEL +.

Diversification Opportunities for Carsales and TRAVEL +

0.65

Correlation Coefficient

Carsales  TRAVEL +

Poor diversification

The 3 months correlation between Carsales and TRAVEL is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and TRAVEL LEISURE DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVEL LEISURE DL 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 TRAVEL +. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVEL LEISURE DL has no effect on the direction of Carsales i.e., Carsales and TRAVEL + go up and down completely randomly.

Pair Corralation between Carsales and TRAVEL +

Assuming the 90 days horizon CarsalesCom is expected to under-perform the TRAVEL +. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 1.17 times less risky than TRAVEL +. The stock trades about -0.03 of its potential returns per unit of risk. The TRAVEL LEISURE DL 01 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,218  in TRAVEL LEISURE DL 01 on October 7, 2024 and sell it today you would earn a total of  622.00  from holding TRAVEL LEISURE DL 01 or generate 14.75% return on investment over 90 days.

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

CarsalesCom  vs.  TRAVEL LEISURE DL 01

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.

TRAVEL LEISURE DL

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, TRAVEL + reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsales and TRAVEL +

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

The idea behind CarsalesCom and TRAVEL LEISURE DL 01 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.