Correlation Between Carmit and Target

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Can any of the company-specific risk be diversified away by investing in both Carmit and Target 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 Carmit and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carmit and Target, you can compare the effects of market volatilities on Carmit and Target 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 Carmit with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carmit and Target.

Diversification Opportunities for Carmit and Target

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Carmit and Target is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Carmit and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Carmit 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 Carmit are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Carmit i.e., Carmit and Target go up and down completely randomly.

Pair Corralation between Carmit and Target

Assuming the 90 days trading horizon Carmit is expected to generate 1.21 times more return on investment than Target. However, Carmit is 1.21 times more volatile than Target. It trades about 0.02 of its potential returns per unit of risk. Target is currently generating about -0.13 per unit of risk. If you would invest  105,600  in Carmit on January 24, 2024 and sell it today you would earn a total of  300.00  from holding Carmit or generate 0.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy80.95%
ValuesDaily Returns

Carmit  vs.  Target

 Performance 
       Timeline  
Carmit 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Carmit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Carmit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Target 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Carmit and Target Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Carmit and Target

The main advantage of trading using opposite Carmit and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carmit position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.
The idea behind Carmit and Target 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.
Check out your portfolio center.
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.

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