Correlation Between OReilly Automotive and Cazoo

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

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

Diversification Opportunities for OReilly Automotive and Cazoo

0.21

Correlation Coefficient

OReilly Automotive  Cazoo

Modest diversification

The 3 months correlation between OReilly and Cazoo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and Cazoo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cazoo Group and OReilly 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 OReilly Automotive are associated (or correlated) with Cazoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cazoo Group has no effect on the direction of OReilly Automotive i.e., OReilly Automotive and Cazoo go up and down completely randomly.

Pair Corralation between OReilly Automotive and Cazoo

Given the investment horizon of 90 days OReilly Automotive is expected to under-perform the Cazoo. But the stock apears to be less risky and, when comparing its historical volatility, OReilly Automotive is 19.17 times less risky than Cazoo. The stock trades about -0.32 of its potential returns per unit of risk. The Cazoo Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  906.00  in Cazoo Group on January 31, 2024 and sell it today you would earn a total of  152.00  from holding Cazoo Group or generate 16.78% return on investment over 90 days.

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

OReilly Automotive  vs.  Cazoo Group

OReilly Automotive

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, OReilly Automotive is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Cazoo Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cazoo Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Cazoo displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OReilly Automotive and Cazoo

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

The idea behind OReilly Automotive and Cazoo Group 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.