Correlation Between PACCAR and Polaris Industries

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

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

Diversification Opportunities for PACCAR and Polaris Industries

0.5

Correlation Coefficient

PACCAR  Polaris Industries

Very weak diversification

The 3 months correlation between PACCAR and Polaris is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Polaris Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polaris Industries and PACCAR 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 PACCAR Inc are associated (or correlated) with Polaris Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polaris Industries has no effect on the direction of PACCAR i.e., PACCAR and Polaris Industries go up and down completely randomly.

Pair Corralation between PACCAR and Polaris Industries

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.69 times more return on investment than Polaris Industries. However, PACCAR Inc is 1.45 times less risky than Polaris Industries. It trades about 0.12 of its potential returns per unit of risk. Polaris Industries is currently generating about 0.0 per unit of risk. If you would invest  5,162  in PACCAR Inc on January 26, 2024 and sell it today you would earn a total of  6,212  from holding PACCAR Inc or generate 120.34% return on investment over 90 days.

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

PACCAR Inc  vs.  Polaris Industries

PACCAR Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Polaris Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Polaris Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Polaris Industries is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with PACCAR and Polaris Industries

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

The idea behind PACCAR Inc and Polaris Industries 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.