Correlation Between AutoNation and Designer Brands

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

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

Diversification Opportunities for AutoNation and Designer Brands

0.42

Correlation Coefficient

AutoNation  Designer Brands

Very weak diversification

The 3 months correlation between AutoNation and Designer is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of AutoNation i.e., AutoNation and Designer Brands go up and down completely randomly.

Pair Corralation between AutoNation and Designer Brands

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the Designer Brands. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 4.39 times less risky than Designer Brands. The stock trades about -0.04 of its potential returns per unit of risk. The Designer Brands is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Designer Brands on September 23, 2024 and sell it today you would earn a total of  60.00  from holding Designer Brands or generate 12.0% return on investment over 90 days.

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

AutoNation  vs.  Designer Brands

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.

Designer Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with AutoNation and Designer Brands

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

The idea behind AutoNation and Designer Brands 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.