Correlation Between Macys and Sonic Automotive

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

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

Diversification Opportunities for Macys and Sonic Automotive

0.56

Correlation Coefficient

Macys  Sonic Automotive

Very weak diversification

The 3 months correlation between Macys and Sonic is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Macys 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 Macys Inc 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 Macys i.e., Macys and Sonic Automotive go up and down completely randomly.

Pair Corralation between Macys and Sonic Automotive

Taking into account the 90-day investment horizon Macys Inc is expected to generate 1.89 times more return on investment than Sonic Automotive. However, Macys is 1.89 times more volatile than Sonic Automotive. It trades about 0.16 of its potential returns per unit of risk. Sonic Automotive is currently generating about -0.32 per unit of risk. If you would invest  1,577  in Macys Inc on September 26, 2024 and sell it today you would earn a total of  105.00  from holding Macys Inc or generate 6.66% return on investment over 90 days.

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

Macys Inc  vs.  Sonic Automotive

Macys Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Macys displayed solid returns over the last few months and may actually be approaching a breakup point.

Sonic Automotive

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Sonic Automotive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Macys and Sonic Automotive

The main advantage of trading using opposite Macys and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macys 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 Macys Inc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.