Correlation Between Murphy USA and Sonic Automotive

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

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

Diversification Opportunities for Murphy USA and Sonic Automotive

0.27

Correlation Coefficient

Murphy USA  Sonic Automotive

Modest diversification

The 3 months correlation between Murphy and Sonic is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Murphy USA and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Murphy USA 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 Murphy USA 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 Murphy USA i.e., Murphy USA and Sonic Automotive go up and down completely randomly.

Pair Corralation between Murphy USA and Sonic Automotive

Given the investment horizon of 90 days Murphy USA is expected to generate 0.71 times more return on investment than Sonic Automotive. However, Murphy USA is 1.4 times less risky than Sonic Automotive. It trades about -0.08 of its potential returns per unit of risk. Sonic Automotive is currently generating about -0.06 per unit of risk. If you would invest  50,468  in Murphy USA on December 27, 2024 and sell it today you would lose (4,486) from holding Murphy USA or give up 8.89% of portfolio value over 90 days.

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

Murphy USA  vs.  Sonic Automotive

Murphy USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Murphy USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sonic Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonic Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Murphy USA and Sonic Automotive

The main advantage of trading using opposite Murphy USA and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy USA 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 Murphy USA 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 Commodity Directory module to find actively traded commodities issued by global exchanges.