Correlation Between Auto Trader and Extra Space

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

By analyzing existing cross correlation between Auto Trader Group and Extra Space Storage, you can compare the effects of market volatilities on Auto Trader and Extra Space 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 Auto Trader with a short position of Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Extra Space.

Diversification Opportunities for Auto Trader and Extra Space

0.56

Correlation Coefficient

Auto Trader  Extra Space

Very weak diversification

The 3 months correlation between Auto and Extra is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Auto Trader 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 Auto Trader Group are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Auto Trader i.e., Auto Trader and Extra Space go up and down completely randomly.

Pair Corralation between Auto Trader and Extra Space

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.61 times more return on investment than Extra Space. However, Auto Trader Group is 1.64 times less risky than Extra Space. It trades about 0.08 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.03 per unit of risk. If you would invest  50,793  in Auto Trader Group on September 12, 2024 and sell it today you would earn a total of  31,647  from holding Auto Trader Group or generate 62.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.19%
Values	Daily Returns

Auto Trader Group  vs.  Extra Space Storage

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Auto Trader is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Auto Trader and Extra Space

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

The idea behind Auto Trader Group and Extra Space Storage 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.