Correlation Between Asbury Automotive and AutoNation

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

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

Diversification Opportunities for Asbury Automotive and AutoNation

0.57

Correlation Coefficient

Asbury Automotive  AutoNation

Very weak diversification

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

Pair Corralation between Asbury Automotive and AutoNation

Considering the 90-day investment horizon Asbury Automotive Group is expected to under-perform the AutoNation. But the stock apears to be less risky and, when comparing its historical volatility, Asbury Automotive Group is 1.14 times less risky than AutoNation. The stock trades about -0.18 of its potential returns per unit of risk. The AutoNation is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  16,476  in AutoNation on January 31, 2024 and sell it today you would earn a total of  67.00  from holding AutoNation or generate 0.41% return on investment over 90 days.

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

Asbury Automotive Group  vs.  AutoNation

Asbury Automotive

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 3 (%) 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.

AutoNation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, AutoNation displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asbury Automotive and AutoNation

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

The idea behind Asbury Automotive Group and AutoNation 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.