Correlation Between Cars and Dana

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

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

Diversification Opportunities for Cars and Dana

0.15

Correlation Coefficient

Cars  Dana

Average diversification

The 3 months correlation between Cars and Dana is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Dana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Inc and Cars 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 Cars Inc are associated (or correlated) with Dana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Inc has no effect on the direction of Cars i.e., Cars and Dana go up and down completely randomly.

Pair Corralation between Cars and Dana

Given the investment horizon of 90 days Cars is expected to generate 4.28 times less return on investment than Dana. But when comparing it to its historical volatility, Cars Inc is 1.89 times less risky than Dana. It trades about 0.05 of its potential returns per unit of risk. Dana Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Dana Inc on September 15, 2024 and sell it today you would earn a total of  283.00  from holding Dana Inc or generate 28.73% return on investment over 90 days.

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

Cars Inc  vs.  Dana Inc

Cars Inc

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Cars may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dana Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Dana displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cars and Dana

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

The idea behind Cars Inc and Dana 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.