Correlation Between Gold Road and Penske Automotive

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

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

Diversification Opportunities for Gold Road and Penske Automotive

0.49

Correlation Coefficient

Gold Road  Penske Automotive

Very weak diversification

The 3 months correlation between Gold and Penske is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Gold Road Resources and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive and Gold Road 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 Gold Road Resources 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 Gold Road i.e., Gold Road and Penske Automotive go up and down completely randomly.

Pair Corralation between Gold Road and Penske Automotive

Assuming the 90 days horizon Gold Road Resources is expected to generate 1.49 times more return on investment than Penske Automotive. However, Gold Road is 1.49 times more volatile than Penske Automotive Group. It trades about 0.21 of its potential returns per unit of risk. Penske Automotive Group is currently generating about -0.01 per unit of risk. If you would invest  120.00  in Gold Road Resources on December 28, 2024 and sell it today you would earn a total of  48.00  from holding Gold Road Resources or generate 40.0% return on investment over 90 days.

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

Gold Road Resources  vs.  Penske Automotive Group

Gold Road Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.

Penske Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penske Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Penske Automotive is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gold Road and Penske Automotive

The main advantage of trading using opposite Gold Road and Penske Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold Road 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 Gold Road Resources 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.