Correlation Between Tandy Leather and Asbury Automotive

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

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

Diversification Opportunities for Tandy Leather and Asbury Automotive

0.5

Correlation Coefficient

Tandy Leather  Asbury Automotive

Very weak diversification

The 3 months correlation between Tandy and Asbury is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tandy Leather Factory and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and Tandy Leather 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 Tandy Leather Factory 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 Tandy Leather i.e., Tandy Leather and Asbury Automotive go up and down completely randomly.

Pair Corralation between Tandy Leather and Asbury Automotive

Considering the 90-day investment horizon Tandy Leather Factory is expected to generate 1.69 times more return on investment than Asbury Automotive. However, Tandy Leather is 1.69 times more volatile than Asbury Automotive Group. It trades about 0.07 of its potential returns per unit of risk. Asbury Automotive Group is currently generating about 0.02 per unit of risk. If you would invest  294.00  in Tandy Leather Factory on December 2, 2024 and sell it today you would earn a total of  36.00  from holding Tandy Leather Factory or generate 12.24% return on investment over 90 days.

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

Tandy Leather Factory  vs.  Asbury Automotive Group

Tandy Leather Factory

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Asbury Automotive

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Asbury Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tandy Leather and Asbury Automotive

The main advantage of trading using opposite Tandy Leather and Asbury Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tandy Leather 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 Tandy Leather Factory 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.