Correlation Between Driven Brands and Group 1

Can any of the company-specific risk be diversified away by investing in both Driven Brands and Group 1 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 Driven Brands and Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Driven Brands Holdings and Group 1 Automotive, you can compare the effects of market volatilities on Driven Brands and Group 1 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 Driven Brands with a short position of Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Driven Brands and Group 1.

Diversification Opportunities for Driven Brands and Group 1

-0.12

Correlation Coefficient

Driven Brands  Group 1

Good diversification

The 3 months correlation between Driven and Group is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Driven Brands Holdings and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive and Driven Brands 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 Driven Brands Holdings are associated (or correlated) with Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of Driven Brands i.e., Driven Brands and Group 1 go up and down completely randomly.

Pair Corralation between Driven Brands and Group 1

Given the investment horizon of 90 days Driven Brands Holdings is expected to under-perform the Group 1. In addition to that, Driven Brands is 1.17 times more volatile than Group 1 Automotive. It trades about -0.02 of its total potential returns per unit of risk. Group 1 Automotive is currently generating about 0.11 per unit of volatility. If you would invest  42,533  in Group 1 Automotive on November 29, 2024 and sell it today you would earn a total of  3,521  from holding Group 1 Automotive or generate 8.28% return on investment over 90 days.

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

Driven Brands Holdings  vs.  Group 1 Automotive

Driven Brands Holdings

Risk-Adjusted Performance

Very Weak

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

Group 1 Automotive

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Driven Brands and Group 1

The main advantage of trading using opposite Driven Brands and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Driven Brands position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind Driven Brands Holdings and Group 1 Automotive 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.