Correlation Between CarsalesCom and Yellow Pages

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

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

Diversification Opportunities for CarsalesCom and Yellow Pages

0.83

Correlation Coefficient

CarsalesCom  Yellow Pages

Very poor diversification

The 3 months correlation between CarsalesCom and Yellow is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Yellow Pages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yellow Pages Limited 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 Yellow Pages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yellow Pages Limited has no effect on the direction of CarsalesCom i.e., CarsalesCom and Yellow Pages go up and down completely randomly.

Pair Corralation between CarsalesCom and Yellow Pages

Assuming the 90 days horizon CarsalesCom is expected to generate 4.14 times less return on investment than Yellow Pages. But when comparing it to its historical volatility, CarsalesCom is 1.03 times less risky than Yellow Pages. It trades about 0.05 of its potential returns per unit of risk. Yellow Pages Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  609.00  in Yellow Pages Limited on September 16, 2024 and sell it today you would earn a total of  141.00  from holding Yellow Pages Limited or generate 23.15% return on investment over 90 days.

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

CarsalesCom  vs.  Yellow Pages Limited

CarsalesCom

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CarsalesCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Yellow Pages Limited

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yellow Pages reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarsalesCom and Yellow Pages

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

The idea behind CarsalesCom and Yellow Pages Limited 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.