Correlation Between AutoNation and ThredUp

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

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

Diversification Opportunities for AutoNation and ThredUp

0.86

Correlation Coefficient

AutoNation  ThredUp

Very poor diversification

The 3 months correlation between AutoNation and ThredUp is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and ThredUp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ThredUp 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 ThredUp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ThredUp has no effect on the direction of AutoNation i.e., AutoNation and ThredUp go up and down completely randomly.

Pair Corralation between AutoNation and ThredUp

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.21 times more return on investment than ThredUp. However, AutoNation is 4.77 times less risky than ThredUp. It trades about -0.06 of its potential returns per unit of risk. ThredUp is currently generating about -0.22 per unit of risk. If you would invest  17,598  in AutoNation on October 11, 2024 and sell it today you would lose (267.00) from holding AutoNation or give up 1.52% of portfolio value over 90 days.

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

AutoNation  vs.  ThredUp

AutoNation

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 4 (%) 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.

ThredUp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ThredUp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, ThredUp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoNation and ThredUp

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

The idea behind AutoNation and ThredUp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.