Correlation Between Group 1 and Driven Brands

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

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

Diversification Opportunities for Group 1 and Driven Brands

-0.38

Correlation Coefficient

Group 1  Driven Brands

Very good diversification

The 3 months correlation between Group and Driven is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Group 1 Automotive and Driven Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Driven Brands Holdings and Group 1 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 Group 1 Automotive are associated (or correlated) with Driven Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Driven Brands Holdings has no effect on the direction of Group 1 i.e., Group 1 and Driven Brands go up and down completely randomly.

Pair Corralation between Group 1 and Driven Brands

Considering the 90-day investment horizon Group 1 Automotive is expected to under-perform the Driven Brands. In addition to that, Group 1 is 1.06 times more volatile than Driven Brands Holdings. It trades about -0.04 of its total potential returns per unit of risk. Driven Brands Holdings is currently generating about 0.1 per unit of volatility. If you would invest  1,596  in Driven Brands Holdings on December 28, 2024 and sell it today you would earn a total of  193.00  from holding Driven Brands Holdings or generate 12.09% return on investment over 90 days.

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

Group 1 Automotive  vs.  Driven Brands Holdings

Group 1 Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Group 1 Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Group 1 is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Driven Brands Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Group 1 and Driven Brands

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

The idea behind Group 1 Automotive and Driven Brands Holdings 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.