Correlation Between Asbury Automotive and RH

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

Diversification Opportunities for Asbury Automotive and RH

0.19

Correlation Coefficient

Asbury Automotive  RH

Average diversification

The 3 months correlation between Asbury and RH is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and RH go up and down completely randomly.

Pair Corralation between Asbury Automotive and RH

Considering the 90-day investment horizon Asbury Automotive is expected to generate 11.12 times less return on investment than RH. But when comparing it to its historical volatility, Asbury Automotive Group is 1.69 times less risky than RH. It trades about 0.02 of its potential returns per unit of risk. RH is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  28,979  in RH on October 25, 2024 and sell it today you would earn a total of  14,494  from holding RH or generate 50.02% return on investment over 90 days.

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

Asbury Automotive Group  vs.  RH

Asbury Automotive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

RH

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asbury Automotive and RH

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

The idea behind Asbury Automotive Group and RH 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.