Correlation Between AUTO TRADER and CapitaLand Investment

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

By analyzing existing cross correlation between AUTO TRADER ADR and CapitaLand Investment Limited, you can compare the effects of market volatilities on AUTO TRADER and CapitaLand Investment 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 AUTO TRADER with a short position of CapitaLand Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of AUTO TRADER and CapitaLand Investment.

Diversification Opportunities for AUTO TRADER and CapitaLand Investment

0.42

Correlation Coefficient

AUTO TRADER  CapitaLand Investment

Very weak diversification

The 3 months correlation between AUTO and CapitaLand is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding AUTO TRADER ADR and CapitaLand Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CapitaLand Investment and AUTO TRADER 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 AUTO TRADER ADR are associated (or correlated) with CapitaLand Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CapitaLand Investment has no effect on the direction of AUTO TRADER i.e., AUTO TRADER and CapitaLand Investment go up and down completely randomly.

Pair Corralation between AUTO TRADER and CapitaLand Investment

Assuming the 90 days trading horizon AUTO TRADER ADR is expected to under-perform the CapitaLand Investment. But the stock apears to be less risky and, when comparing its historical volatility, AUTO TRADER ADR is 1.05 times less risky than CapitaLand Investment. The stock trades about 0.0 of its potential returns per unit of risk. The CapitaLand Investment Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  190.00  in CapitaLand Investment Limited on September 5, 2024 and sell it today you would earn a total of  3.00  from holding CapitaLand Investment Limited or generate 1.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

AUTO TRADER ADR  vs.  CapitaLand Investment Limited

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AUTO TRADER is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CapitaLand Investment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CapitaLand Investment Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CapitaLand Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AUTO TRADER and CapitaLand Investment

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

The idea behind AUTO TRADER ADR and CapitaLand Investment 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.