Correlation Between Carvana Co and Parts ID

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Can any of the company-specific risk be diversified away by investing in both Carvana Co and Parts ID 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 Carvana Co and Parts ID into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carvana Co Cl and Parts ID, you can compare the effects of market volatilities on Carvana Co and Parts ID 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 Carvana Co with a short position of Parts ID. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carvana Co and Parts ID.

Diversification Opportunities for Carvana Co and Parts ID

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Carvana and Parts is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Carvana Co Cl and Parts ID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parts ID and Carvana Co 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 Carvana Co Cl are associated (or correlated) with Parts ID. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parts ID has no effect on the direction of Carvana Co i.e., Carvana Co and Parts ID go up and down completely randomly.

Pair Corralation between Carvana Co and Parts ID

Given the investment horizon of 90 days Carvana Co Cl is expected to generate 1.3 times more return on investment than Parts ID. However, Carvana Co is 1.3 times more volatile than Parts ID. It trades about 0.06 of its potential returns per unit of risk. Parts ID is currently generating about -0.03 per unit of risk. If you would invest  2,944  in Carvana Co Cl on March 30, 2022 and sell it today you would earn a total of  90.00  from holding Carvana Co Cl or generate 3.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.0%
ValuesDaily Returns

Carvana Co Cl  vs.  Parts ID

 Performance (%) 
      Timeline 
Carvana Co Cl 
Carvana Performance
0 of 100
Over the last 90 days Carvana Co Cl 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 basic indicators remain somewhat strong which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Carvana Price Channel

Parts ID 
Parts Performance
0 of 100
Over the last 90 days Parts ID has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in July 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Parts Price Channel

Carvana Co and Parts ID Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Carvana Co and Parts ID

The main advantage of trading using opposite Carvana Co and Parts ID positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carvana Co position performs unexpectedly, Parts ID 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 Parts ID will offset losses from the drop in Parts ID's long position.
The idea behind Carvana Co Cl and Parts ID 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.
Check out your portfolio center. 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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