Correlation Between Best Buy and Asbury Automotive

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

By analyzing existing cross correlation between Best Buy Co and Asbury Automotive Group, you can compare the effects of market volatilities on Best Buy and Asbury Automotive 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 Best Buy with a short position of Asbury Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Asbury Automotive.

Diversification Opportunities for Best Buy and Asbury Automotive

-0.69

Correlation Coefficient

Best Buy  Asbury Automotive

Excellent diversification

The 3 months correlation between Best and Asbury is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and Best Buy 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 Best Buy Co are associated (or correlated) with Asbury Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asbury Automotive has no effect on the direction of Best Buy i.e., Best Buy and Asbury Automotive go up and down completely randomly.

Pair Corralation between Best Buy and Asbury Automotive

Considering the 90-day investment horizon Best Buy Co is expected to under-perform the Asbury Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.22 times less risky than Asbury Automotive. The stock trades about -0.1 of its potential returns per unit of risk. The Asbury Automotive Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  21,293  in Asbury Automotive Group on September 12, 2024 and sell it today you would earn a total of  4,381  from holding Asbury Automotive Group or generate 20.57% return on investment over 90 days.

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

Best Buy Co  vs.  Asbury Automotive Group

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Asbury Automotive

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Best Buy and Asbury Automotive

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

The idea behind Best Buy Co and Asbury Automotive Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.