Correlation Between Rocket CompaniesInc and Carvana

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

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

Diversification Opportunities for Rocket CompaniesInc and Carvana

0.63

Correlation Coefficient

Rocket CompaniesInc  Carvana

Poor diversification

The 3 months correlation between Rocket and Carvana is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Rocket CompaniesInc and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana and Rocket CompaniesInc 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 Rocket CompaniesInc are associated (or correlated) with Carvana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana has no effect on the direction of Rocket CompaniesInc i.e., Rocket CompaniesInc and Carvana go up and down completely randomly.

Pair Corralation between Rocket CompaniesInc and Carvana

Considering the 90-day investment horizon Rocket CompaniesInc is expected to generate 11.3 times less return on investment than Carvana. But when comparing it to its historical volatility, Rocket CompaniesInc is 1.81 times less risky than Carvana. It trades about 0.02 of its potential returns per unit of risk. Carvana Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,221  in Carvana Co on January 17, 2024 and sell it today you would earn a total of  2,762  from holding Carvana Co or generate 65.43% return on investment over 90 days.

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

Rocket CompaniesInc  vs.  Carvana Co

Rocket CompaniesInc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket CompaniesInc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking signals, Rocket CompaniesInc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Carvana

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rocket CompaniesInc and Carvana

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

The idea behind Rocket CompaniesInc and Carvana Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.