Correlation Between AutoNation and Asbury Automotive

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

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

Diversification Opportunities for AutoNation and Asbury Automotive

0.7

Correlation Coefficient

AutoNation  Asbury Automotive

Poor diversification

The 3 months correlation between AutoNation and Asbury is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and AutoNation 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 AutoNation 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 AutoNation i.e., AutoNation and Asbury Automotive go up and down completely randomly.

Pair Corralation between AutoNation and Asbury Automotive

Assuming the 90 days horizon AutoNation is expected to generate 1.19 times more return on investment than Asbury Automotive. However, AutoNation is 1.19 times more volatile than Asbury Automotive Group. It trades about 0.03 of its potential returns per unit of risk. Asbury Automotive Group is currently generating about -0.21 per unit of risk. If you would invest  16,100  in AutoNation on September 23, 2024 and sell it today you would earn a total of  130.00  from holding AutoNation or generate 0.81% return on investment over 90 days.

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

AutoNation  vs.  Asbury Automotive Group

AutoNation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AutoNation is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Asbury Automotive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoNation and Asbury Automotive

The main advantage of trading using opposite AutoNation and Asbury Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation 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 AutoNation 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.