Correlation Between EBay and Americas Car
Can any of the company-specific risk be diversified away by investing in both EBay and Americas Car 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 EBay and Americas Car into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between eBay Inc and Americas Car Mart, you can compare the effects of market volatilities on EBay and Americas Car 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 EBay with a short position of Americas Car. Check out your portfolio center. Please also check ongoing floating volatility patterns of EBay and Americas Car.
Diversification Opportunities for EBay and Americas Car
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between EBay and Americas is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding eBay Inc and Americas Car Mart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Americas Car Mart and EBay 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 eBay Inc are associated (or correlated) with Americas Car. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Americas Car Mart has no effect on the direction of EBay i.e., EBay and Americas Car go up and down completely randomly.
Pair Corralation between EBay and Americas Car
Given the investment horizon of 90 days eBay Inc is expected to generate 0.53 times more return on investment than Americas Car. However, eBay Inc is 1.87 times less risky than Americas Car. It trades about 0.21 of its potential returns per unit of risk. Americas Car Mart is currently generating about 0.03 per unit of risk. If you would invest 4,336 in eBay Inc on February 17, 2024 and sell it today you would earn a total of 934.00 from holding eBay Inc or generate 21.54% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
eBay Inc vs. Americas Car Mart
Performance |
Timeline |
eBay Inc |
Americas Car Mart |
EBay and Americas Car Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with EBay and Americas Car
The main advantage of trading using opposite EBay and Americas Car positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBay position performs unexpectedly, Americas Car 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 Americas Car will offset losses from the drop in Americas Car's long position.The idea behind eBay Inc and Americas Car Mart 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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