Correlation Between Cars and Nissan Chemical

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

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

Diversification Opportunities for Cars and Nissan Chemical

0.31

Correlation Coefficient

Cars  Nissan Chemical

Weak diversification

The 3 months correlation between Cars and Nissan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Nissan Chemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nissan Chemical Corp 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 Nissan Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nissan Chemical Corp has no effect on the direction of Cars i.e., Cars and Nissan Chemical go up and down completely randomly.

Pair Corralation between Cars and Nissan Chemical

Assuming the 90 days horizon Cars is expected to generate 123.83 times less return on investment than Nissan Chemical. In addition to that, Cars is 1.2 times more volatile than Nissan Chemical Corp. It trades about 0.0 of its total potential returns per unit of risk. Nissan Chemical Corp is currently generating about 0.04 per unit of volatility. If you would invest  2,780  in Nissan Chemical Corp on September 30, 2024 and sell it today you would earn a total of  200.00  from holding Nissan Chemical Corp or generate 7.19% return on investment over 90 days.

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

Cars Inc  vs.  Nissan Chemical Corp

Cars Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Nissan Chemical Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nissan Chemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Cars and Nissan Chemical

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

The idea behind Cars Inc and Nissan Chemical Corp 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.