Correlation Between Americas Car and AutoNation

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

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

Diversification Opportunities for Americas Car and AutoNation

-0.28

Correlation Coefficient

Americas Car  AutoNation

Very good diversification

The 3 months correlation between Americas and AutoNation is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Americas Car Mart and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Americas Car 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 Americas Car Mart are associated (or correlated) with AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of Americas Car i.e., Americas Car and AutoNation go up and down completely randomly.

Pair Corralation between Americas Car and AutoNation

Given the investment horizon of 90 days Americas Car Mart is expected to under-perform the AutoNation. In addition to that, Americas Car is 1.66 times more volatile than AutoNation. It trades about -0.1 of its total potential returns per unit of risk. AutoNation is currently generating about -0.03 per unit of volatility. If you would invest  16,194  in AutoNation on January 26, 2024 and sell it today you would lose (242.00) from holding AutoNation or give up 1.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Americas Car Mart  vs.  AutoNation

Americas Car Mart

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Americas Car Mart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Americas Car is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Americas Car and AutoNation

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

The idea behind Americas Car Mart and AutoNation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.