Correlation Between Lowes Companies and AutoNation

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

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

Diversification Opportunities for Lowes Companies and AutoNation

0.81

Correlation Coefficient

Lowes Companies  AutoNation

Very poor diversification

The 3 months correlation between Lowes and AutoNation is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and AutoNation go up and down completely randomly.

Pair Corralation between Lowes Companies and AutoNation

Considering the 90-day investment horizon Lowes Companies is expected to under-perform the AutoNation. But the stock apears to be less risky and, when comparing its historical volatility, Lowes Companies is 1.14 times less risky than AutoNation. The stock trades about -0.3 of its potential returns per unit of risk. The AutoNation is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  16,168  in AutoNation on January 20, 2024 and sell it today you would lose (706.00) from holding AutoNation or give up 4.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Lowes Companies  vs.  AutoNation

Lowes Companies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lowes Companies is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

AutoNation

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, AutoNation may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Lowes Companies and AutoNation

The main advantage of trading using opposite Lowes Companies and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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 Lowes Companies 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.