Correlation Between Carsales and MUTUIONLINE

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

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

Diversification Opportunities for Carsales and MUTUIONLINE

0.43

Correlation Coefficient

Carsales  MUTUIONLINE

Very weak diversification

The 3 months correlation between Carsales and MUTUIONLINE is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and MUTUIONLINE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MUTUIONLINE 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 MUTUIONLINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MUTUIONLINE has no effect on the direction of Carsales i.e., Carsales and MUTUIONLINE go up and down completely randomly.

Pair Corralation between Carsales and MUTUIONLINE

Assuming the 90 days trading horizon Carsales is expected to under-perform the MUTUIONLINE. But the stock apears to be less risky and, when comparing its historical volatility, Carsales is 1.31 times less risky than MUTUIONLINE. The stock trades about -0.01 of its potential returns per unit of risk. The MUTUIONLINE is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,300  in MUTUIONLINE on September 27, 2024 and sell it today you would earn a total of  455.00  from holding MUTUIONLINE or generate 13.79% return on investment over 90 days.

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

Carsales  vs.  MUTUIONLINE

Carsales

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsales has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

MUTUIONLINE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MUTUIONLINE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, MUTUIONLINE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsales and MUTUIONLINE

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

The idea behind Carsales and MUTUIONLINE 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.