Correlation Between AutoNation and Urban Outfitters

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

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

Diversification Opportunities for AutoNation and Urban Outfitters

-0.04

Correlation Coefficient

AutoNation  Urban Outfitters

Good diversification

The 3 months correlation between AutoNation and Urban is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of AutoNation i.e., AutoNation and Urban Outfitters go up and down completely randomly.

Pair Corralation between AutoNation and Urban Outfitters

Assuming the 90 days horizon AutoNation is expected to generate 0.68 times more return on investment than Urban Outfitters. However, AutoNation is 1.48 times less risky than Urban Outfitters. It trades about 0.16 of its potential returns per unit of risk. Urban Outfitters is currently generating about 0.01 per unit of risk. If you would invest  16,000  in AutoNation on May 27, 2025 and sell it today you would earn a total of  2,675  from holding AutoNation or generate 16.72% return on investment over 90 days.

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

AutoNation  vs.  Urban Outfitters

AutoNation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoNation reported solid returns over the last few months and may actually be approaching a breakup point.

Urban Outfitters

Risk-Adjusted Performance

Weakest

Over the last 90 days Urban Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Urban Outfitters is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AutoNation and Urban Outfitters

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

The idea behind AutoNation and Urban Outfitters 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.