Correlation Between AUTONATION and Freedom Bank

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

By analyzing existing cross correlation between AUTONATION INC 38 and Freedom Bank of, you can compare the effects of market volatilities on AUTONATION and Freedom Bank 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 Freedom Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of AUTONATION and Freedom Bank.

Diversification Opportunities for AUTONATION and Freedom Bank

0.57

Correlation Coefficient

AUTONATION  Freedom Bank

Very weak diversification

The 3 months correlation between AUTONATION and Freedom is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding AUTONATION INC 38 and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank 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 INC 38 are associated (or correlated) with Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of AUTONATION i.e., AUTONATION and Freedom Bank go up and down completely randomly.

Pair Corralation between AUTONATION and Freedom Bank

Assuming the 90 days trading horizon AUTONATION INC 38 is expected to generate 0.88 times more return on investment than Freedom Bank. However, AUTONATION INC 38 is 1.14 times less risky than Freedom Bank. It trades about -0.08 of its potential returns per unit of risk. Freedom Bank of is currently generating about -0.13 per unit of risk. If you would invest  9,639  in AUTONATION INC 38 on December 26, 2024 and sell it today you would lose (281.00) from holding AUTONATION INC 38 or give up 2.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	83.33%
Values	Daily Returns

AUTONATION INC 38  vs.  Freedom Bank of

AUTONATION INC 38

Risk-Adjusted Performance

Very Weak

Over the last 90 days AUTONATION INC 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AUTONATION is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Freedom Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freedom Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with AUTONATION and Freedom Bank

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

The idea behind AUTONATION INC 38 and Freedom Bank of 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.