Correlation Between NORTHEAST UTILITIES and CARSALESCOM

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

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

Diversification Opportunities for NORTHEAST UTILITIES and CARSALESCOM

0.08

Correlation Coefficient

NORTHEAST UTILITIES  CARSALESCOM

Significant diversification

The 3 months correlation between NORTHEAST and CARSALESCOM is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES 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 NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and CARSALESCOM go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and CARSALESCOM

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to under-perform the CARSALESCOM. But the stock apears to be less risky and, when comparing its historical volatility, NORTHEAST UTILITIES is 1.13 times less risky than CARSALESCOM. The stock trades about -0.03 of its potential returns per unit of risk. The CARSALESCOM is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,246  in CARSALESCOM on September 29, 2024 and sell it today you would earn a total of  934.00  from holding CARSALESCOM or generate 74.96% return on investment over 90 days.

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

NORTHEAST UTILITIES  vs.  CARSALESCOM

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

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

CARSALESCOM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. 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 NORTHEAST UTILITIES and CARSALESCOM

The main advantage of trading using opposite NORTHEAST UTILITIES and CARSALESCOM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NORTHEAST UTILITIES 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 NORTHEAST UTILITIES 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.