Correlation Between Asbury Automotive and Bath Body

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

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

Diversification Opportunities for Asbury Automotive and Bath Body

0.58

Correlation Coefficient

Asbury Automotive  Bath Body

Very weak diversification

The 3 months correlation between Asbury and Bath is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works and Asbury Automotive 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 Asbury Automotive Group are associated (or correlated) with Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and Bath Body go up and down completely randomly.

Pair Corralation between Asbury Automotive and Bath Body

Considering the 90-day investment horizon Asbury Automotive Group is expected to generate 0.85 times more return on investment than Bath Body. However, Asbury Automotive Group is 1.17 times less risky than Bath Body. It trades about -0.03 of its potential returns per unit of risk. Bath Body Works is currently generating about -0.09 per unit of risk. If you would invest  24,296  in Asbury Automotive Group on December 28, 2024 and sell it today you would lose (1,680) from holding Asbury Automotive Group or give up 6.91% of portfolio value over 90 days.

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

Asbury Automotive Group  vs.  Bath Body Works

Asbury Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Asbury Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Asbury Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Bath Body Works

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bath Body Works has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Asbury Automotive and Bath Body

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

The idea behind Asbury Automotive Group and Bath Body Works 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.