Correlation Between Carsales and InPlay Oil

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

By analyzing existing cross correlation between Carsales and InPlay Oil Corp, you can compare the effects of market volatilities on Carsales and InPlay Oil 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 InPlay Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and InPlay Oil.

Diversification Opportunities for Carsales and InPlay Oil

-0.63

Correlation Coefficient

Carsales  InPlay Oil

Excellent diversification

The 3 months correlation between Carsales and InPlay is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and InPlay Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InPlay Oil Corp 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 Carsales are associated (or correlated) with InPlay Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InPlay Oil Corp has no effect on the direction of Carsales i.e., Carsales and InPlay Oil go up and down completely randomly.

Pair Corralation between Carsales and InPlay Oil

Assuming the 90 days trading horizon Carsales is expected to generate 0.73 times more return on investment than InPlay Oil. However, Carsales is 1.36 times less risky than InPlay Oil. It trades about 0.15 of its potential returns per unit of risk. InPlay Oil Corp is currently generating about -0.12 per unit of risk. If you would invest  2,280  in Carsales on August 30, 2024 and sell it today you would earn a total of  320.00  from holding Carsales or generate 14.04% return on investment over 90 days.

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

Carsales  vs.  InPlay Oil Corp

Carsales

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Carsales unveiled solid returns over the last few months and may actually be approaching a breakup point.

InPlay Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Carsales and InPlay Oil

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

The idea behind Carsales and InPlay Oil Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.