Correlation Between SL Green and Cars

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

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

Diversification Opportunities for SL Green and Cars

0.53

Correlation Coefficient

SL Green  Cars

Very weak diversification

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

Pair Corralation between SL Green and Cars

Assuming the 90 days horizon SL Green Realty is expected to under-perform the Cars. But the stock apears to be less risky and, when comparing its historical volatility, SL Green Realty is 1.27 times less risky than Cars. The stock trades about -0.09 of its potential returns per unit of risk. The Cars Inc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,810  in Cars Inc on September 13, 2024 and sell it today you would lose (20.00) from holding Cars Inc or give up 1.1% of portfolio value over 90 days.

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

SL Green Realty  vs.  Cars Inc

SL Green Realty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SL Green Realty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SL Green reported solid returns over the last few months and may actually be approaching a breakup point.

Cars Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 8 (%) 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.

Pair Trading with SL Green and Cars

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

The idea behind SL Green Realty and Cars 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.