Correlation Between AutoNation and Floor Decor

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

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

Diversification Opportunities for AutoNation and Floor Decor

0.66

Correlation Coefficient

AutoNation  Floor Decor

Poor diversification

The 3 months correlation between AutoNation and Floor is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings 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 Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of AutoNation i.e., AutoNation and Floor Decor go up and down completely randomly.

Pair Corralation between AutoNation and Floor Decor

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.75 times more return on investment than Floor Decor. However, AutoNation is 1.34 times less risky than Floor Decor. It trades about 0.05 of its potential returns per unit of risk. Floor Decor Holdings is currently generating about -0.02 per unit of risk. If you would invest  16,710  in AutoNation on September 14, 2024 and sell it today you would earn a total of  781.00  from holding AutoNation or generate 4.67% return on investment over 90 days.

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

AutoNation  vs.  Floor Decor Holdings

AutoNation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Floor Decor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Floor Decor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AutoNation and Floor Decor

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

The idea behind AutoNation and Floor Decor Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.