Correlation Between Credit Acceptance and World Acceptance

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

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

Diversification Opportunities for Credit Acceptance and World Acceptance

-0.06

Correlation Coefficient

Credit Acceptance  World Acceptance

Good diversification

The 3 months correlation between Credit and World is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and World Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Acceptance and Credit Acceptance 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 Credit Acceptance are associated (or correlated) with World Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Acceptance has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and World Acceptance go up and down completely randomly.

Pair Corralation between Credit Acceptance and World Acceptance

Given the investment horizon of 90 days Credit Acceptance is expected to generate 2.8 times less return on investment than World Acceptance. But when comparing it to its historical volatility, Credit Acceptance is 1.39 times less risky than World Acceptance. It trades about 0.01 of its potential returns per unit of risk. World Acceptance is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  14,741  in World Acceptance on January 31, 2024 and sell it today you would lose (479.00) from holding World Acceptance or give up 3.25% of portfolio value over 90 days.

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

Credit Acceptance  vs.  World Acceptance

Credit Acceptance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credit Acceptance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Credit Acceptance is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

World Acceptance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in World Acceptance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, World Acceptance may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Credit Acceptance and World Acceptance

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

The idea behind Credit Acceptance and World Acceptance 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.