Correlation Between Deluxe and CarsalesCom

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

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

Diversification Opportunities for Deluxe and CarsalesCom

0.5

Correlation Coefficient

Deluxe  CarsalesCom

Very weak diversification

The 3 months correlation between Deluxe and CarsalesCom is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR and Deluxe 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 Deluxe 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 ADR has no effect on the direction of Deluxe i.e., Deluxe and CarsalesCom go up and down completely randomly.

Pair Corralation between Deluxe and CarsalesCom

Considering the 90-day investment horizon Deluxe is expected to under-perform the CarsalesCom. In addition to that, Deluxe is 2.66 times more volatile than CarsalesCom Ltd ADR. It trades about -0.11 of its total potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about 0.06 per unit of volatility. If you would invest  5,363  in CarsalesCom Ltd ADR on September 23, 2024 and sell it today you would earn a total of  44.00  from holding CarsalesCom Ltd ADR or generate 0.82% return on investment over 90 days.

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

Deluxe  vs.  CarsalesCom Ltd ADR

Deluxe

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

CarsalesCom ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deluxe and CarsalesCom

The main advantage of trading using opposite Deluxe and CarsalesCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deluxe 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 Deluxe and CarsalesCom Ltd ADR 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.