Correlation Between Pool and Asbury Automotive

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

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

Diversification Opportunities for Pool and Asbury Automotive

0.27

Correlation Coefficient

Pool  Asbury Automotive

Modest diversification

The 3 months correlation between Pool and Asbury is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and Pool 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 Pool Corporation are associated (or correlated) with Asbury Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asbury Automotive has no effect on the direction of Pool i.e., Pool and Asbury Automotive go up and down completely randomly.

Pair Corralation between Pool and Asbury Automotive

Given the investment horizon of 90 days Pool is expected to generate 1.85 times less return on investment than Asbury Automotive. But when comparing it to its historical volatility, Pool Corporation is 1.18 times less risky than Asbury Automotive. It trades about 0.03 of its potential returns per unit of risk. Asbury Automotive Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,430  in Asbury Automotive Group on September 24, 2024 and sell it today you would earn a total of  7,147  from holding Asbury Automotive Group or generate 41.0% return on investment over 90 days.

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

Pool Corp.  vs.  Asbury Automotive Group

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pool is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Asbury Automotive

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental drivers, Asbury Automotive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pool and Asbury Automotive

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

The idea behind Pool Corporation and Asbury Automotive Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.