Correlation Between Asbury Automotive and Melbana Energy

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

Diversification Opportunities for Asbury Automotive and Melbana Energy

-0.17

Correlation Coefficient

Asbury Automotive  Melbana Energy

Good diversification

The 3 months correlation between Asbury and Melbana is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and Melbana Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melbana Energy 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 Melbana Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melbana Energy has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and Melbana Energy go up and down completely randomly.

Pair Corralation between Asbury Automotive and Melbana Energy

Considering the 90-day investment horizon Asbury Automotive is expected to generate 10.71 times less return on investment than Melbana Energy. But when comparing it to its historical volatility, Asbury Automotive Group is 9.05 times less risky than Melbana Energy. It trades about 0.13 of its potential returns per unit of risk. Melbana Energy Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Melbana Energy Limited on December 2, 2024 and sell it today you would earn a total of  0.30  from holding Melbana Energy Limited or generate 150.0% return on investment over 90 days.

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

Asbury Automotive Group  vs.  Melbana Energy Limited

Asbury Automotive

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Melbana Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Melbana Energy Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Melbana Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asbury Automotive and Melbana Energy

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

The idea behind Asbury Automotive Group and Melbana Energy Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.