Correlation Between Ross Stores and Auto Trader

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Can any of the company-specific risk be diversified away by investing in both Ross Stores and Auto Trader 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 Ross Stores and Auto Trader into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ross Stores and Auto Trader Group, you can compare the effects of market volatilities on Ross Stores and Auto Trader 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 Ross Stores with a short position of Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ross Stores and Auto Trader.

Diversification Opportunities for Ross Stores and Auto Trader

-0.05
  Correlation Coefficient

Good diversification

The 3 months correlation between Ross and Auto is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and Ross Stores 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 Ross Stores are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Ross Stores i.e., Ross Stores and Auto Trader go up and down completely randomly.

Pair Corralation between Ross Stores and Auto Trader

Assuming the 90 days trading horizon Ross Stores is expected to generate 1.2 times more return on investment than Auto Trader. However, Ross Stores is 1.2 times more volatile than Auto Trader Group. It trades about 0.07 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.01 per unit of risk. If you would invest  13,706  in Ross Stores on September 11, 2024 and sell it today you would earn a total of  1,050  from holding Ross Stores or generate 7.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.46%
ValuesDaily Returns

Ross Stores  vs.  Auto Trader Group

 Performance 
       Timeline  
Ross Stores 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Auto Trader Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ross Stores and Auto Trader Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ross Stores and Auto Trader

The main advantage of trading using opposite Ross Stores and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.
The idea behind Ross Stores and Auto Trader 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.
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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