Can any of the company-specific risk be diversified away by investing in both Commercial Vehicle and Monro Muffler 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 Commercial Vehicle and Monro Muffler into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commercial Vehicle Group and Monro Muffler Brake, you can compare the effects of market volatilities on Commercial Vehicle and Monro Muffler 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 Commercial Vehicle with a short position of Monro Muffler. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commercial Vehicle and Monro Muffler.
Diversification Opportunities for Commercial Vehicle and Monro Muffler
The 3 months correlation between Commercial and Monro is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Vehicle Group and Monro Muffler Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monro Muffler Brake and Commercial Vehicle 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 Commercial Vehicle Group are associated (or correlated) with Monro Muffler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monro Muffler Brake has no effect on the direction of Commercial Vehicle i.e., Commercial Vehicle and Monro Muffler go up and down completely randomly.
Pair Corralation between Commercial Vehicle and Monro Muffler
Given the investment horizon of 90 days Commercial Vehicle Group is expected to generate 0.74 times more return on investment than Monro Muffler. However, Commercial Vehicle Group is 1.35 times less risky than Monro Muffler. It trades about -0.13 of its potential returns per unit of risk. Monro Muffler Brake is currently generating about -0.13 per unit of risk. If you would invest 638.00 in Commercial Vehicle Group on March 6, 2024 and sell it today you would lose (106.00) from holding Commercial Vehicle Group or give up 16.61% of portfolio value over 90 days.
Over the last 90 days Commercial Vehicle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.