Correlation Between Rush Enterprises and Sonic Automotive

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

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

Diversification Opportunities for Rush Enterprises and Sonic Automotive

0.64

Correlation Coefficient

Rush Enterprises  Sonic Automotive

Poor diversification

The 3 months correlation between Rush and Sonic is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Rush Enterprises A and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Rush Enterprises 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 Rush Enterprises A 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 Rush Enterprises i.e., Rush Enterprises and Sonic Automotive go up and down completely randomly.

Pair Corralation between Rush Enterprises and Sonic Automotive

Assuming the 90 days horizon Rush Enterprises A is expected to under-perform the Sonic Automotive. In addition to that, Rush Enterprises is 1.04 times more volatile than Sonic Automotive. It trades about -0.05 of its total potential returns per unit of risk. Sonic Automotive is currently generating about 0.02 per unit of volatility. If you would invest  6,878  in Sonic Automotive on November 29, 2024 and sell it today you would earn a total of  72.00  from holding Sonic Automotive or generate 1.05% return on investment over 90 days.

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

Rush Enterprises A  vs.  Sonic Automotive

Rush Enterprises A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rush Enterprises A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical 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

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Sonic Automotive is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Rush Enterprises and Sonic Automotive

The main advantage of trading using opposite Rush Enterprises and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rush Enterprises 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 Rush Enterprises A 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.