Correlation Between Standard and Commercial Vehicle

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

By analyzing existing cross correlation between Standard Motor Products and Commercial Vehicle Group, you can compare the effects of market volatilities on Standard and Commercial Vehicle 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 Standard with a short position of Commercial Vehicle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard and Commercial Vehicle.

Diversification Opportunities for Standard and Commercial Vehicle

-0.26

Correlation Coefficient

Standard  Commercial Vehicle

Very good diversification

The 3 months correlation between Standard and Commercial is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Commercial Vehicle Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Vehicle and Standard 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 Standard Motor Products are associated (or correlated) with Commercial Vehicle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Vehicle has no effect on the direction of Standard i.e., Standard and Commercial Vehicle go up and down completely randomly.

Pair Corralation between Standard and Commercial Vehicle

Considering the 90-day investment horizon Standard Motor Products is expected to generate 0.66 times more return on investment than Commercial Vehicle. However, Standard Motor Products is 1.52 times less risky than Commercial Vehicle. It trades about 0.04 of its potential returns per unit of risk. Commercial Vehicle Group is currently generating about -0.09 per unit of risk. If you would invest  3,143  in Standard Motor Products on September 3, 2024 and sell it today you would earn a total of  145.00  from holding Standard Motor Products or generate 4.61% return on investment over 90 days.

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

Standard Motor Products  vs.  Commercial Vehicle Group

Standard Motor Products

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Motor Products are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Standard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Commercial Vehicle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commercial Vehicle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Standard and Commercial Vehicle

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

The idea behind Standard Motor Products and Commercial Vehicle Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.