Correlation Between AutoNation and Flexsteel Industries

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

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

Diversification Opportunities for AutoNation and Flexsteel Industries

0.57

Correlation Coefficient

AutoNation  Flexsteel Industries

Very weak diversification

The 3 months correlation between AutoNation and Flexsteel is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Flexsteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexsteel Industries 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 Flexsteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexsteel Industries has no effect on the direction of AutoNation i.e., AutoNation and Flexsteel Industries go up and down completely randomly.

Pair Corralation between AutoNation and Flexsteel Industries

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.4 times more return on investment than Flexsteel Industries. However, AutoNation is 2.5 times less risky than Flexsteel Industries. It trades about -0.04 of its potential returns per unit of risk. Flexsteel Industries is currently generating about -0.1 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	Weak
Accuracy	100.0%
Values	Daily Returns

AutoNation  vs.  Flexsteel Industries

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.

Flexsteel Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flexsteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with AutoNation and Flexsteel Industries

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

The idea behind AutoNation and Flexsteel Industries 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.