Correlation Between CarsalesCom and ScanSource

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

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

Diversification Opportunities for CarsalesCom and ScanSource

0.68

Correlation Coefficient

CarsalesCom  ScanSource

Poor diversification

The 3 months correlation between CarsalesCom and ScanSource is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and CarsalesCom 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 CarsalesCom Ltd ADR are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of CarsalesCom i.e., CarsalesCom and ScanSource go up and down completely randomly.

Pair Corralation between CarsalesCom and ScanSource

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to under-perform the ScanSource. In addition to that, CarsalesCom is 1.02 times more volatile than ScanSource. It trades about -0.23 of its total potential returns per unit of risk. ScanSource is currently generating about -0.04 per unit of volatility. If you would invest  4,297  in ScanSource on January 29, 2024 and sell it today you would lose (100.00) from holding ScanSource or give up 2.33% of portfolio value over 90 days.

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

CarsalesCom Ltd ADR  vs.  ScanSource

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CarsalesCom is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ScanSource

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with CarsalesCom and ScanSource

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

The idea behind CarsalesCom Ltd ADR and ScanSource 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.