Correlation Between Carsales and Evolent Health

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

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

Diversification Opportunities for Carsales and Evolent Health

-0.62

Correlation Coefficient

Carsales  Evolent Health

Excellent diversification

The 3 months correlation between Carsales and Evolent is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Evolent Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolent Health 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 Carsales are associated (or correlated) with Evolent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolent Health has no effect on the direction of Carsales i.e., Carsales and Evolent Health go up and down completely randomly.

Pair Corralation between Carsales and Evolent Health

Assuming the 90 days trading horizon Carsales is expected to under-perform the Evolent Health. But the stock apears to be less risky and, when comparing its historical volatility, Carsales is 2.64 times less risky than Evolent Health. The stock trades about -0.72 of its potential returns per unit of risk. The Evolent Health is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  1,260  in Evolent Health on September 28, 2024 and sell it today you would lose (180.00) from holding Evolent Health or give up 14.29% of portfolio value over 90 days.

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

Carsales  vs.  Evolent Health

Carsales

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsales has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Carsales is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Carsales and Evolent Health

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

The idea behind Carsales and Evolent Health 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.