Correlation Between AutoNation and Autoliv

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

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

Diversification Opportunities for AutoNation and Autoliv

0.85

Correlation Coefficient

AutoNation  Autoliv

Very poor diversification

The 3 months correlation between AutoNation and Autoliv is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Autoliv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autoliv 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 Autoliv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autoliv has no effect on the direction of AutoNation i.e., AutoNation and Autoliv go up and down completely randomly.

Pair Corralation between AutoNation and Autoliv

Allowing for the 90-day total investment horizon AutoNation is expected to generate 1.4 times more return on investment than Autoliv. However, AutoNation is 1.4 times more volatile than Autoliv. It trades about 0.12 of its potential returns per unit of risk. Autoliv is currently generating about 0.14 per unit of risk. If you would invest  14,020  in AutoNation on January 26, 2024 and sell it today you would earn a total of  1,932  from holding AutoNation or generate 13.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

AutoNation  vs.  Autoliv

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.

Autoliv

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Autoliv are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Autoliv may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AutoNation and Autoliv

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

The idea behind AutoNation and Autoliv 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.