Correlation Between AutoNation and Americas Car

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

By analyzing existing cross correlation between AutoNation and Americas Car Mart, you can compare the effects of market volatilities on AutoNation and Americas Car 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 Americas Car. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Americas Car.

Diversification Opportunities for AutoNation and Americas Car

0.22

Correlation Coefficient

AutoNation  Americas Car

Modest diversification

The 3 months correlation between AutoNation and Americas is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Americas Car Mart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Americas Car Mart 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 Americas Car. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Americas Car Mart has no effect on the direction of AutoNation i.e., AutoNation and Americas Car go up and down completely randomly.

Pair Corralation between AutoNation and Americas Car

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.62 times more return on investment than Americas Car. However, AutoNation is 1.62 times less risky than Americas Car. It trades about -0.04 of its potential returns per unit of risk. Americas Car Mart is currently generating about -0.04 per unit of risk. If you would invest  16,872  in AutoNation on December 30, 2024 and sell it today you would lose (964.00) from holding AutoNation or give up 5.71% of portfolio value over 90 days.

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

AutoNation  vs.  Americas Car Mart

AutoNation

Risk-Adjusted Performance

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.

Americas Car Mart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Americas Car Mart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with AutoNation and Americas Car

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

The idea behind AutoNation and Americas Car Mart 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.