Correlation Between Exelon and AutoNation

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Can any of the company-specific risk be diversified away by investing in both Exelon 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 Exelon and AutoNation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exelon and AutoNation, you can compare the effects of market volatilities on Exelon 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 Exelon with a short position of AutoNation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exelon and AutoNation.

Diversification Opportunities for Exelon and AutoNation

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Exelon and AutoNation is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Exelon and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Exelon 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 Exelon 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 Exelon i.e., Exelon and AutoNation go up and down completely randomly.

Pair Corralation between Exelon and AutoNation

Considering the 90-day investment horizon Exelon is expected to generate 7.78 times less return on investment than AutoNation. But when comparing it to its historical volatility, Exelon is 1.81 times less risky than AutoNation. It trades about 0.02 of its potential returns per unit of risk. AutoNation is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  15,903  in AutoNation on February 8, 2024 and sell it today you would earn a total of  524.00  from holding AutoNation or generate 3.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Exelon  vs.  AutoNation

 Performance 
       Timeline  
Exelon 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Exelon exhibited solid returns over the last few months and may actually be approaching a breakup point.
AutoNation 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, AutoNation may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Exelon and AutoNation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exelon and AutoNation

The main advantage of trading using opposite Exelon and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exelon 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 Exelon 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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