Correlation Between Roivant Sciences and Carvana

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

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

Diversification Opportunities for Roivant Sciences and Carvana

0.21

Correlation Coefficient

Roivant Sciences  Carvana

Modest diversification

The 3 months correlation between Roivant and Carvana is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Roivant Sciences and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana and Roivant Sciences 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 Roivant Sciences 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 Roivant Sciences i.e., Roivant Sciences and Carvana go up and down completely randomly.

Pair Corralation between Roivant Sciences and Carvana

Given the investment horizon of 90 days Roivant Sciences is expected to generate 1.67 times less return on investment than Carvana. But when comparing it to its historical volatility, Roivant Sciences is 2.31 times less risky than Carvana. It trades about 0.07 of its potential returns per unit of risk. Carvana Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,047  in Carvana Co on January 20, 2024 and sell it today you would earn a total of  1,068  from holding Carvana Co or generate 17.66% return on investment over 90 days.

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

Roivant Sciences  vs.  Carvana Co

Roivant Sciences

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Roivant Sciences are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, Roivant Sciences is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Carvana

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Roivant Sciences and Carvana

The main advantage of trading using opposite Roivant Sciences and Carvana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roivant Sciences 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 Roivant Sciences 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.