Correlation Between Asbury Automotive and IAA

Can any of the company-specific risk be diversified away by investing in both Asbury Automotive and IAA 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 IAA 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 IAA Inc, you can compare the effects of market volatilities on Asbury Automotive and IAA 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 IAA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asbury Automotive and IAA.

Diversification Opportunities for Asbury Automotive and IAA

0.39

Correlation Coefficient

Asbury Automotive  IAA

Weak diversification

The 3 months correlation between Asbury and IAA is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and IAA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAA Inc 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 IAA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAA Inc has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and IAA go up and down completely randomly.

Pair Corralation between Asbury Automotive and IAA

If you would invest  3,989  in IAA Inc on February 1, 2024 and sell it today you would earn a total of  0.00  from holding IAA Inc or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	4.55%
Values	Daily Returns

Asbury Automotive Group  vs.  IAA Inc

Asbury Automotive

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Asbury Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

IAA Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Asbury Automotive and IAA

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

The idea behind Asbury Automotive Group and IAA Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.