Correlation Between Asbury Automotive and Southwest Airlines

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

Diversification Opportunities for Asbury Automotive and Southwest Airlines

0.83

Correlation Coefficient

Asbury Automotive  Southwest Airlines

Very poor diversification

The 3 months correlation between Asbury and Southwest is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and Southwest Airlines go up and down completely randomly.

Pair Corralation between Asbury Automotive and Southwest Airlines

Considering the 90-day investment horizon Asbury Automotive is expected to generate 1.01 times less return on investment than Southwest Airlines. In addition to that, Asbury Automotive is 1.03 times more volatile than Southwest Airlines. It trades about 0.12 of its total potential returns per unit of risk. Southwest Airlines is currently generating about 0.13 per unit of volatility. If you would invest  2,854  in Southwest Airlines on September 15, 2024 and sell it today you would earn a total of  448.00  from holding Southwest Airlines or generate 15.7% return on investment over 90 days.

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

Asbury Automotive Group  vs.  Southwest Airlines

Asbury Automotive

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental drivers, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Southwest Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asbury Automotive and Southwest Airlines

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

The idea behind Asbury Automotive Group and Southwest Airlines 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.