Correlation Between AutoNation and Academy Sports

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

By analyzing existing cross correlation between AutoNation and Academy Sports Outdoors, you can compare the effects of market volatilities on AutoNation and Academy Sports 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 AutoNation with a short position of Academy Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Academy Sports.

Diversification Opportunities for AutoNation and Academy Sports

0.21

Correlation Coefficient

AutoNation  Academy Sports

Modest diversification

The 3 months correlation between AutoNation and Academy is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Academy Sports Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Academy Sports Outdoors and AutoNation 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 AutoNation are associated (or correlated) with Academy Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Academy Sports Outdoors has no effect on the direction of AutoNation i.e., AutoNation and Academy Sports go up and down completely randomly.

Pair Corralation between AutoNation and Academy Sports

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the Academy Sports. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 1.63 times less risky than Academy Sports. The stock trades about -0.04 of its potential returns per unit of risk. The Academy Sports Outdoors is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  4,655  in Academy Sports Outdoors on September 23, 2024 and sell it today you would earn a total of  909.00  from holding Academy Sports Outdoors or generate 19.53% return on investment over 90 days.

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

AutoNation  vs.  Academy Sports Outdoors

AutoNation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Academy Sports Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with AutoNation and Academy Sports

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

The idea behind AutoNation and Academy Sports Outdoors 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 Stocks Directory module to find actively traded stocks across global markets.