Correlation Between Cars and Penske Automotive

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

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

Diversification Opportunities for Cars and Penske Automotive

0.07

Correlation Coefficient

Cars  Penske Automotive

Significant diversification

The 3 months correlation between Cars and Penske is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive and Cars 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 Cars Inc are associated (or correlated) with Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of Cars i.e., Cars and Penske Automotive go up and down completely randomly.

Pair Corralation between Cars and Penske Automotive

Assuming the 90 days horizon Cars Inc is expected to under-perform the Penske Automotive. In addition to that, Cars is 2.24 times more volatile than Penske Automotive Group. It trades about -0.22 of its total potential returns per unit of risk. Penske Automotive Group is currently generating about 0.02 per unit of volatility. If you would invest  15,584  in Penske Automotive Group on December 2, 2024 and sell it today you would earn a total of  216.00  from holding Penske Automotive Group or generate 1.39% return on investment over 90 days.

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

Cars Inc  vs.  Penske Automotive Group

Cars Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Penske Automotive

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Penske Automotive Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penske Automotive is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cars and Penske Automotive

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

The idea behind Cars Inc and Penske 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.