Correlation Between AutoNation and Tile Shop

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

By analyzing existing cross correlation between AutoNation and Tile Shop Holdings, you can compare the effects of market volatilities on AutoNation and Tile Shop 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 Tile Shop. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Tile Shop.

Diversification Opportunities for AutoNation and Tile Shop

0.88

Correlation Coefficient

AutoNation  Tile Shop

Very poor diversification

The 3 months correlation between AutoNation and Tile is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Tile Shop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tile Shop Holdings 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 are associated (or correlated) with Tile Shop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tile Shop Holdings has no effect on the direction of AutoNation i.e., AutoNation and Tile Shop go up and down completely randomly.

Pair Corralation between AutoNation and Tile Shop

Allowing for the 90-day total investment horizon AutoNation is expected to generate 1.04 times more return on investment than Tile Shop. However, AutoNation is 1.04 times more volatile than Tile Shop Holdings. It trades about -0.02 of its potential returns per unit of risk. Tile Shop Holdings is currently generating about -0.1 per unit of risk. If you would invest  17,539  in AutoNation on January 13, 2025 and sell it today you would lose (757.00) from holding AutoNation or give up 4.32% of portfolio value over 90 days.

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

AutoNation  vs.  Tile Shop Holdings

AutoNation

Risk-Adjusted Performance

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Tile Shop Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tile Shop Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with AutoNation and Tile Shop

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

The idea behind AutoNation and Tile Shop Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.