Correlation Between AutoNation and Pet Acquisition

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

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

Diversification Opportunities for AutoNation and Pet Acquisition

0.08

Correlation Coefficient

AutoNation  Pet Acquisition

Significant diversification

The 3 months correlation between AutoNation and Pet is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Pet Acquisition LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pet Acquisition LLC 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 Pet Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pet Acquisition LLC has no effect on the direction of AutoNation i.e., AutoNation and Pet Acquisition go up and down completely randomly.

Pair Corralation between AutoNation and Pet Acquisition

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the Pet Acquisition. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 6.09 times less risky than Pet Acquisition. The stock trades about -0.15 of its potential returns per unit of risk. The Pet Acquisition LLC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  398.00  in Pet Acquisition LLC on September 27, 2024 and sell it today you would lose (3.00) from holding Pet Acquisition LLC or give up 0.75% of portfolio value over 90 days.

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

AutoNation  vs.  Pet Acquisition LLC

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.

Pet Acquisition LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pet Acquisition LLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with AutoNation and Pet Acquisition

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

The idea behind AutoNation and Pet Acquisition LLC 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.