Correlation Between Asbury Automotive and Digi International

Can any of the company-specific risk be diversified away by investing in both Asbury Automotive and Digi International 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 Digi International 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 Digi International, you can compare the effects of market volatilities on Asbury Automotive and Digi International 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 Digi International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asbury Automotive and Digi International.

Diversification Opportunities for Asbury Automotive and Digi International

0.85

Correlation Coefficient

Asbury Automotive  Digi International

Very poor diversification

The 3 months correlation between Asbury and Digi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International 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 Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and Digi International go up and down completely randomly.

Pair Corralation between Asbury Automotive and Digi International

Considering the 90-day investment horizon Asbury Automotive Group is expected to generate 0.73 times more return on investment than Digi International. However, Asbury Automotive Group is 1.38 times less risky than Digi International. It trades about -0.25 of its potential returns per unit of risk. Digi International is currently generating about -0.42 per unit of risk. If you would invest  25,495  in Asbury Automotive Group on October 13, 2024 and sell it today you would lose (1,715) from holding Asbury Automotive Group or give up 6.73% of portfolio value over 90 days.

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

Asbury Automotive Group  vs.  Digi International

Asbury Automotive

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Asbury Automotive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Digi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digi International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Digi International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Asbury Automotive and Digi International

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

The idea behind Asbury Automotive Group and Digi International 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 the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.