Correlation Between Caseys General and CARSALESCOM

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

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

Diversification Opportunities for Caseys General and CARSALESCOM

0.82

Correlation Coefficient

Caseys General  CARSALESCOM

Very poor diversification

The 3 months correlation between Caseys and CARSALESCOM is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Caseys General Stores and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and Caseys General 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 Caseys General Stores are associated (or correlated) with CARSALESCOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Caseys General i.e., Caseys General and CARSALESCOM go up and down completely randomly.

Pair Corralation between Caseys General and CARSALESCOM

Assuming the 90 days trading horizon Caseys General Stores is expected to generate 1.14 times more return on investment than CARSALESCOM. However, Caseys General is 1.14 times more volatile than CARSALESCOM. It trades about 0.16 of its potential returns per unit of risk. CARSALESCOM is currently generating about 0.05 per unit of risk. If you would invest  34,153  in Caseys General Stores on September 14, 2024 and sell it today you would earn a total of  6,247  from holding Caseys General Stores or generate 18.29% return on investment over 90 days.

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

Caseys General Stores  vs.  CARSALESCOM

Caseys General Stores

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caseys General Stores are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Caseys General unveiled solid returns over the last few months and may actually be approaching a breakup point.

CARSALESCOM

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Caseys General and CARSALESCOM

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

The idea behind Caseys General Stores and CARSALESCOM 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.