Correlation Between Leslies and Sonic Automotive

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

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

Diversification Opportunities for Leslies and Sonic Automotive

-0.42

Correlation Coefficient

Leslies  Sonic Automotive

Very good diversification

The 3 months correlation between Leslies and Sonic is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Leslies and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Leslies 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 Leslies are associated (or correlated) with Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of Leslies i.e., Leslies and Sonic Automotive go up and down completely randomly.

Pair Corralation between Leslies and Sonic Automotive

Given the investment horizon of 90 days Leslies is expected to generate 7.63 times less return on investment than Sonic Automotive. In addition to that, Leslies is 1.71 times more volatile than Sonic Automotive. It trades about 0.02 of its total potential returns per unit of risk. Sonic Automotive is currently generating about 0.29 per unit of volatility. If you would invest  6,298  in Sonic Automotive on October 24, 2024 and sell it today you would earn a total of  506.00  from holding Sonic Automotive or generate 8.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Leslies  vs.  Sonic Automotive

Leslies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leslies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Sonic Automotive

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Sonic Automotive demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leslies and Sonic Automotive

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

The idea behind Leslies and Sonic 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.