Correlation Between Cars and Aberforth Smaller

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

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

Diversification Opportunities for Cars and Aberforth Smaller

0.19

Correlation Coefficient

Cars  Aberforth Smaller

Average diversification

The 3 months correlation between Cars and Aberforth is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Aberforth Smaller Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberforth Smaller and Cars 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 Cars Inc are associated (or correlated) with Aberforth Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberforth Smaller has no effect on the direction of Cars i.e., Cars and Aberforth Smaller go up and down completely randomly.

Pair Corralation between Cars and Aberforth Smaller

Assuming the 90 days trading horizon Cars Inc is expected to generate 3.71 times more return on investment than Aberforth Smaller. However, Cars is 3.71 times more volatile than Aberforth Smaller Companies. It trades about 0.09 of its potential returns per unit of risk. Aberforth Smaller Companies is currently generating about 0.28 per unit of risk. If you would invest  1,173  in Cars Inc on April 24, 2025 and sell it today you would earn a total of  148.00  from holding Cars Inc or generate 12.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	79.37%
Values	Daily Returns

Cars Inc  vs.  Aberforth Smaller Companies

Cars Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Cars unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aberforth Smaller

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aberforth Smaller Companies are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Aberforth Smaller exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cars and Aberforth Smaller

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

The idea behind Cars Inc and Aberforth Smaller Companies 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .