Correlation Between Carsales and DexCom

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

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

Diversification Opportunities for Carsales and DexCom

0.86

Correlation Coefficient

Carsales  DexCom

Very poor diversification

The 3 months correlation between Carsales and DexCom is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and DexCom Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DexCom Inc 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 DexCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DexCom Inc has no effect on the direction of Carsales i.e., Carsales and DexCom go up and down completely randomly.

Pair Corralation between Carsales and DexCom

Assuming the 90 days trading horizon Carsales is expected to generate 0.74 times more return on investment than DexCom. However, Carsales is 1.35 times less risky than DexCom. It trades about -0.07 of its potential returns per unit of risk. DexCom Inc is currently generating about -0.07 per unit of risk. If you would invest  2,155  in Carsales on December 28, 2024 and sell it today you would lose (205.00) from holding Carsales or give up 9.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Carsales  vs.  DexCom Inc

Carsales

Risk-Adjusted Performance

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

DexCom Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days DexCom Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 DexCom

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

The idea behind Carsales and DexCom Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.