Correlation Between Group 1 and Prestige Cars

Can any of the company-specific risk be diversified away by investing in both Group 1 and Prestige Cars 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 Prestige Cars 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 Prestige Cars International, you can compare the effects of market volatilities on Group 1 and Prestige Cars 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 Prestige Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of Group 1 and Prestige Cars.

Diversification Opportunities for Group 1 and Prestige Cars

0.24

Correlation Coefficient

Group 1  Prestige Cars

Modest diversification

The 3 months correlation between Group and Prestige is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Group 1 Automotive and Prestige Cars International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prestige Cars Intern 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 Prestige Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prestige Cars Intern has no effect on the direction of Group 1 i.e., Group 1 and Prestige Cars go up and down completely randomly.

Pair Corralation between Group 1 and Prestige Cars

Considering the 90-day investment horizon Group 1 Automotive is expected to under-perform the Prestige Cars. But the stock apears to be less risky and, when comparing its historical volatility, Group 1 Automotive is 5.14 times less risky than Prestige Cars. The stock trades about -0.04 of its potential returns per unit of risk. The Prestige Cars International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.50  in Prestige Cars International on December 28, 2024 and sell it today you would earn a total of  0.15  from holding Prestige Cars International or generate 30.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Group 1 Automotive  vs.  Prestige Cars International

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.

Prestige Cars Intern

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Cars International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, Prestige Cars exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Group 1 and Prestige Cars

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

The idea behind Group 1 Automotive and Prestige Cars International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.