Correlation Between CARSALES and GEO

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

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

Diversification Opportunities for CARSALES and GEO

0.92

Correlation Coefficient

CARSALES  GEO

Almost no diversification

The 3 months correlation between CARSALES and GEO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and The GEO Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEO Group and CARSALES 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 CARSALESCOM are associated (or correlated) with GEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEO Group has no effect on the direction of CARSALES i.e., CARSALES and GEO go up and down completely randomly.

Pair Corralation between CARSALES and GEO

Assuming the 90 days trading horizon CARSALES is expected to generate 6.51 times less return on investment than GEO. But when comparing it to its historical volatility, CARSALESCOM is 4.57 times less risky than GEO. It trades about 0.16 of its potential returns per unit of risk. The GEO Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,245  in The GEO Group on August 31, 2024 and sell it today you would earn a total of  1,495  from holding The GEO Group or generate 120.08% return on investment over 90 days.

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

CARSALESCOM  vs.  The GEO Group

CARSALESCOM

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CARSALES exhibited solid returns over the last few months and may actually be approaching a breakup point.

GEO Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The GEO Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GEO reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CARSALES and GEO

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

The idea behind CARSALESCOM and The GEO 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..