Correlation Between Carsales and GigaMedia

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

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

Diversification Opportunities for Carsales and GigaMedia

0.63

Correlation Coefficient

Carsales  GigaMedia

Poor diversification

The 3 months correlation between Carsales and GigaMedia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and GigaMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GigaMedia 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 GigaMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GigaMedia has no effect on the direction of Carsales i.e., Carsales and GigaMedia go up and down completely randomly.

Pair Corralation between Carsales and GigaMedia

Assuming the 90 days trading horizon Carsales is expected to generate 1.04 times more return on investment than GigaMedia. However, Carsales is 1.04 times more volatile than GigaMedia. It trades about 0.08 of its potential returns per unit of risk. GigaMedia is currently generating about 0.04 per unit of risk. If you would invest  1,236  in Carsales on September 29, 2024 and sell it today you would earn a total of  1,004  from holding Carsales or generate 81.23% return on investment over 90 days.

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

Carsales  vs.  GigaMedia

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.

GigaMedia

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GigaMedia are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GigaMedia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsales and GigaMedia

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

The idea behind Carsales and GigaMedia 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.