Correlation Between Valvoline and CarGurus

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

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

Diversification Opportunities for Valvoline and CarGurus

-0.54

Correlation Coefficient

Valvoline  CarGurus

Excellent diversification

The 3 months correlation between Valvoline and CarGurus is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Valvoline and CarGurus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarGurus and Valvoline 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 Valvoline are associated (or correlated) with CarGurus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarGurus has no effect on the direction of Valvoline i.e., Valvoline and CarGurus go up and down completely randomly.

Pair Corralation between Valvoline and CarGurus

Considering the 90-day investment horizon Valvoline is expected to generate 8.56 times less return on investment than CarGurus. But when comparing it to its historical volatility, Valvoline is 1.44 times less risky than CarGurus. It trades about 0.01 of its potential returns per unit of risk. CarGurus is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,680  in CarGurus on October 1, 2024 and sell it today you would earn a total of  2,027  from holding CarGurus or generate 120.65% return on investment over 90 days.

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

Valvoline  vs.  CarGurus

Valvoline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valvoline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

CarGurus

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CarGurus are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, CarGurus reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valvoline and CarGurus

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

The idea behind Valvoline and CarGurus 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.