Correlation Between Cars and Tandem Diabetes

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

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

Diversification Opportunities for Cars and Tandem Diabetes

-0.49

Correlation Coefficient

Cars  Tandem Diabetes

Very good diversification

The 3 months correlation between Cars and Tandem is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care 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 Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Cars i.e., Cars and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Cars and Tandem Diabetes

Given the investment horizon of 90 days Cars Inc is expected to under-perform the Tandem Diabetes. But the stock apears to be less risky and, when comparing its historical volatility, Cars Inc is 2.56 times less risky than Tandem Diabetes. The stock trades about -0.03 of its potential returns per unit of risk. The Tandem Diabetes Care is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,455  in Tandem Diabetes Care on February 13, 2024 and sell it today you would earn a total of  1,981  from holding Tandem Diabetes Care or generate 80.69% return on investment over 90 days.

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

Cars Inc  vs.  Tandem Diabetes Care

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 comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Tandem Diabetes Care

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Tandem Diabetes displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cars and Tandem Diabetes

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

The idea behind Cars Inc and Tandem Diabetes Care 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 Global Correlations module to find global opportunities by holding instruments from different markets.