Correlation Between Cars and Doman Building

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

By analyzing existing cross correlation between Cars Inc and Doman Building Materials, you can compare the effects of market volatilities on Cars and Doman Building 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 Cars with a short position of Doman Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Doman Building.

Diversification Opportunities for Cars and Doman Building

-0.52

Correlation Coefficient

Cars  Doman Building

Excellent diversification

The 3 months correlation between Cars and Doman is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Doman Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doman Building Materials and Cars 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 Cars Inc are associated (or correlated) with Doman Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doman Building Materials has no effect on the direction of Cars i.e., Cars and Doman Building go up and down completely randomly.

Pair Corralation between Cars and Doman Building

Given the investment horizon of 90 days Cars Inc is expected to generate 0.97 times more return on investment than Doman Building. However, Cars Inc is 1.03 times less risky than Doman Building. It trades about -0.02 of its potential returns per unit of risk. Doman Building Materials is currently generating about -0.24 per unit of risk. If you would invest  1,672  in Cars Inc on January 23, 2024 and sell it today you would lose (16.00) from holding Cars Inc or give up 0.96% of portfolio value over 90 days.

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

Cars Inc  vs.  Doman Building Materials

Cars Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Doman Building Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Doman Building is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cars and Doman Building

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

The idea behind Cars Inc and Doman Building Materials 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.