Correlation Between PACCAR and CarsalesCom

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

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

Diversification Opportunities for PACCAR and CarsalesCom

0.07

Correlation Coefficient

PACCAR  CarsalesCom

Significant diversification

The 3 months correlation between PACCAR and CarsalesCom is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR and PACCAR 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 PACCAR Inc 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 PACCAR i.e., PACCAR and CarsalesCom go up and down completely randomly.

Pair Corralation between PACCAR and CarsalesCom

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.62 times more return on investment than CarsalesCom. However, PACCAR Inc is 1.61 times less risky than CarsalesCom. It trades about 0.22 of its potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about 0.07 per unit of risk. If you would invest  9,233  in PACCAR Inc on September 5, 2024 and sell it today you would earn a total of  2,452  from holding PACCAR Inc or generate 26.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

PACCAR Inc  vs.  CarsalesCom Ltd ADR

PACCAR Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported 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 weak basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PACCAR and CarsalesCom

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

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.