Correlation Between Carsales and Dream Industrial

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

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

Diversification Opportunities for Carsales and Dream Industrial

-0.29

Correlation Coefficient

Carsales  Dream Industrial

Very good diversification

The 3 months correlation between Carsales and Dream is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Dream Industrial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dream Industrial Real 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 CarsalesCom Ltd ADR are associated (or correlated) with Dream Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dream Industrial Real has no effect on the direction of Carsales i.e., Carsales and Dream Industrial go up and down completely randomly.

Pair Corralation between Carsales and Dream Industrial

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to under-perform the Dream Industrial. In addition to that, Carsales is 1.28 times more volatile than Dream Industrial Real. It trades about -0.16 of its total potential returns per unit of risk. Dream Industrial Real is currently generating about -0.06 per unit of volatility. If you would invest  935.00  in Dream Industrial Real on January 26, 2024 and sell it today you would lose (17.00) from holding Dream Industrial Real or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

CarsalesCom Ltd ADR  vs.  Dream Industrial Real

CarsalesCom ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Carsales is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Dream Industrial Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dream Industrial Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Carsales and Dream Industrial

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

The idea behind CarsalesCom Ltd ADR and Dream Industrial Real 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.