Correlation Between Carsales and InterContinental

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

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

Diversification Opportunities for Carsales and InterContinental

0.83

Correlation Coefficient

Carsales  InterContinental

Very poor diversification

The 3 months correlation between Carsales and InterContinental is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels 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 InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Carsales i.e., Carsales and InterContinental go up and down completely randomly.

Pair Corralation between Carsales and InterContinental

Assuming the 90 days trading horizon Carsales is expected to generate 4.48 times less return on investment than InterContinental. But when comparing it to its historical volatility, Carsales is 1.06 times less risky than InterContinental. It trades about 0.06 of its potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  9,350  in InterContinental Hotels Group on September 14, 2024 and sell it today you would earn a total of  2,750  from holding InterContinental Hotels Group or generate 29.41% return on investment over 90 days.

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

Carsales  vs.  InterContinental Hotels Group

Carsales

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 5 (%) 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.

InterContinental Hotels

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsales and InterContinental

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

The idea behind Carsales and InterContinental Hotels 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.