Correlation Between AutoNation and Group 1

Can any of the company-specific risk be diversified away by investing in both AutoNation and Group 1 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 Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AutoNation and Group 1 Automotive, you can compare the effects of market volatilities on AutoNation and Group 1 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 Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Group 1.

Diversification Opportunities for AutoNation and Group 1

0.49

Correlation Coefficient

AutoNation  Group 1

Very weak diversification

The 3 months correlation between AutoNation and Group is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive 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 Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of AutoNation i.e., AutoNation and Group 1 go up and down completely randomly.

Pair Corralation between AutoNation and Group 1

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the Group 1. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 1.41 times less risky than Group 1. The stock trades about -0.03 of its potential returns per unit of risk. The Group 1 Automotive is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  28,176  in Group 1 Automotive on January 25, 2024 and sell it today you would earn a total of  1,795  from holding Group 1 Automotive or generate 6.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

AutoNation  vs.  Group 1 Automotive

AutoNation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 10 (%) 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.

Group 1 Automotive

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AutoNation and Group 1

The main advantage of trading using opposite AutoNation and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind AutoNation and Group 1 Automotive 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.