Correlation Between Addus HomeCare and Auto Trader

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

By analyzing existing cross correlation between Addus HomeCare and Auto Trader Group, you can compare the effects of market volatilities on Addus HomeCare and Auto Trader 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 Addus HomeCare with a short position of Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Addus HomeCare and Auto Trader.

Diversification Opportunities for Addus HomeCare and Auto Trader

0.37

Correlation Coefficient

Addus HomeCare  Auto Trader

Weak diversification

The 3 months correlation between Addus and Auto is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and Addus HomeCare 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 Addus HomeCare are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Addus HomeCare i.e., Addus HomeCare and Auto Trader go up and down completely randomly.

Pair Corralation between Addus HomeCare and Auto Trader

Assuming the 90 days horizon Addus HomeCare is expected to generate 1.34 times more return on investment than Auto Trader. However, Addus HomeCare is 1.34 times more volatile than Auto Trader Group. It trades about 0.0 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.01 per unit of risk. If you would invest  11,400  in Addus HomeCare on September 13, 2024 and sell it today you would lose (200.00) from holding Addus HomeCare or give up 1.75% of portfolio value over 90 days.

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

Addus HomeCare  vs.  Auto Trader Group

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Addus HomeCare and Auto Trader

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

The idea behind Addus HomeCare and Auto Trader Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.