Correlation Between Avis Budget and Aarons

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

By analyzing existing cross correlation between Avis Budget Group and The Aarons, you can compare the effects of market volatilities on Avis Budget and Aarons 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 Avis Budget with a short position of Aarons. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avis Budget and Aarons.

Diversification Opportunities for Avis Budget and Aarons

0.66

Correlation Coefficient

Avis Budget  Aarons

Poor diversification

The 3 months correlation between Avis and Aarons is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Avis Budget Group and The Aarons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons and Avis Budget 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 Avis Budget Group are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons has no effect on the direction of Avis Budget i.e., Avis Budget and Aarons go up and down completely randomly.

Pair Corralation between Avis Budget and Aarons

Considering the 90-day investment horizon Avis Budget Group is expected to under-perform the Aarons. In addition to that, Avis Budget is 1.09 times more volatile than The Aarons. It trades about -0.05 of its total potential returns per unit of risk. The Aarons is currently generating about 0.01 per unit of volatility. If you would invest  1,047  in The Aarons on September 12, 2024 and sell it today you would lose (38.00) from holding The Aarons or give up 3.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	81.05%
Values	Daily Returns

Avis Budget Group  vs.  The Aarons

Avis Budget Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Avis Budget reported solid returns over the last few months and may actually be approaching a breakup point.

Aarons

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with Avis Budget and Aarons

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

The idea behind Avis Budget Group and The Aarons 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.