Correlation Between Cars and United Guardian

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

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

Diversification Opportunities for Cars and United Guardian

-0.74

Correlation Coefficient

Cars  United Guardian

Pay attention - limited upside

The 3 months correlation between Cars and United is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and United Guardian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Guardian 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 United Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Guardian has no effect on the direction of Cars i.e., Cars and United Guardian go up and down completely randomly.

Pair Corralation between Cars and United Guardian

Given the investment horizon of 90 days Cars Inc is expected to under-perform the United Guardian. But the stock apears to be less risky and, when comparing its historical volatility, Cars Inc is 1.54 times less risky than United Guardian. The stock trades about -0.02 of its potential returns per unit of risk. The United Guardian is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  882.00  in United Guardian on September 24, 2024 and sell it today you would earn a total of  86.00  from holding United Guardian or generate 9.75% return on investment over 90 days.

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

Cars Inc  vs.  United Guardian

Cars Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

United Guardian

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Guardian has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cars and United Guardian

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

The idea behind Cars Inc and United Guardian 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.