Correlation Between Teradyne and Carsales

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

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

Diversification Opportunities for Teradyne and Carsales

-0.55

Correlation Coefficient

Teradyne  Carsales

Excellent diversification

The 3 months correlation between Teradyne and Carsales is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and Carsales in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carsales and Teradyne 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 Teradyne are associated (or correlated) with Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carsales has no effect on the direction of Teradyne i.e., Teradyne and Carsales go up and down completely randomly.

Pair Corralation between Teradyne and Carsales

Assuming the 90 days horizon Teradyne is expected to generate 1.84 times more return on investment than Carsales. However, Teradyne is 1.84 times more volatile than Carsales. It trades about 0.34 of its potential returns per unit of risk. Carsales is currently generating about -0.22 per unit of risk. If you would invest  9,613  in Teradyne on September 17, 2024 and sell it today you would earn a total of  1,809  from holding Teradyne or generate 18.82% return on investment over 90 days.

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

Teradyne  vs.  Carsales

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Teradyne is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Carsales

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Carsales is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Teradyne and Carsales

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

The idea behind Teradyne and Carsales 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.