Correlation Between AutoNation and Tractor Supply

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

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

Diversification Opportunities for AutoNation and Tractor Supply

0.24

Correlation Coefficient

AutoNation  Tractor Supply

Modest diversification

The 3 months correlation between AutoNation and Tractor is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Tractor Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tractor Supply 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 Tractor Supply. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tractor Supply has no effect on the direction of AutoNation i.e., AutoNation and Tractor Supply go up and down completely randomly.

Pair Corralation between AutoNation and Tractor Supply

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.67 times more return on investment than Tractor Supply. However, AutoNation is 1.5 times less risky than Tractor Supply. It trades about -0.15 of its potential returns per unit of risk. Tractor Supply is currently generating about -0.15 per unit of risk. If you would invest  17,958  in AutoNation on September 26, 2024 and sell it today you would lose (574.00) from holding AutoNation or give up 3.2% 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.  Tractor Supply

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.

Tractor Supply

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tractor Supply has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Tractor Supply is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with AutoNation and Tractor Supply

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

The idea behind AutoNation and Tractor Supply 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.