Correlation Between CEA Industries and PACCAR

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

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

Diversification Opportunities for CEA Industries and PACCAR

-0.53

Correlation Coefficient

CEA Industries  PACCAR

Excellent diversification

The 3 months correlation between CEA and PACCAR is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding CEA Industries and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc and CEA Industries 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 CEA Industries are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of CEA Industries i.e., CEA Industries and PACCAR go up and down completely randomly.

Pair Corralation between CEA Industries and PACCAR

Given the investment horizon of 90 days CEA Industries is expected to under-perform the PACCAR. In addition to that, CEA Industries is 1.46 times more volatile than PACCAR Inc. It trades about -0.05 of its total potential returns per unit of risk. PACCAR Inc is currently generating about 0.19 per unit of volatility. If you would invest  9,531  in PACCAR Inc on September 1, 2024 and sell it today you would earn a total of  2,169  from holding PACCAR Inc or generate 22.76% return on investment over 90 days.

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

CEA Industries  vs.  PACCAR Inc

CEA Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CEA Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

PACCAR Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CEA Industries and PACCAR

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

The idea behind CEA Industries and PACCAR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.