Correlation Between Standard and AutoNation

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

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

Diversification Opportunities for Standard and AutoNation

-0.5

Correlation Coefficient

Standard  AutoNation

Very good diversification

The 3 months correlation between Standard and AutoNation is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Standard 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 Standard Motor Products 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 Standard i.e., Standard and AutoNation go up and down completely randomly.

Pair Corralation between Standard and AutoNation

Considering the 90-day investment horizon Standard Motor Products is expected to under-perform the AutoNation. But the stock apears to be less risky and, when comparing its historical volatility, Standard Motor Products is 1.27 times less risky than AutoNation. The stock trades about -0.13 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  15,846  in AutoNation on February 5, 2024 and sell it today you would earn a total of  672.00  from holding AutoNation or generate 4.24% return on investment over 90 days.

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

Standard Motor Products  vs.  AutoNation

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

AutoNation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 9 (%) 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 Standard and AutoNation

The main advantage of trading using opposite Standard and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard 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 Standard Motor Products 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .