Correlation Between Standard and Motorcar Parts

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

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

Diversification Opportunities for Standard and Motorcar Parts

0.46

Correlation Coefficient

Standard  Motorcar Parts

Very weak diversification

The 3 months correlation between Standard and Motorcar is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Motorcar Parts of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motorcar Parts and Standard 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 Standard Motor Products are associated (or correlated) with Motorcar Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motorcar Parts has no effect on the direction of Standard i.e., Standard and Motorcar Parts go up and down completely randomly.

Pair Corralation between Standard and Motorcar Parts

Considering the 90-day investment horizon Standard Motor Products is expected to generate 0.43 times more return on investment than Motorcar Parts. However, Standard Motor Products is 2.31 times less risky than Motorcar Parts. It trades about 0.08 of its potential returns per unit of risk. Motorcar Parts of is currently generating about -0.31 per unit of risk. If you would invest  3,114  in Standard Motor Products on February 12, 2024 and sell it today you would earn a total of  140.00  from holding Standard Motor Products or generate 4.5% return on investment over 90 days.

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

Standard Motor Products  vs.  Motorcar Parts of

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Motorcar Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Motorcar Parts of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Standard and Motorcar Parts

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

The idea behind Standard Motor Products and Motorcar Parts of 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.