Correlation Between Schlumberger and AutoNation

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

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

Diversification Opportunities for Schlumberger and AutoNation

0.65

Correlation Coefficient

Schlumberger  AutoNation

Poor diversification

The 3 months correlation between Schlumberger and AutoNation is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Schlumberger NV and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Schlumberger 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 Schlumberger NV 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 Schlumberger i.e., Schlumberger and AutoNation go up and down completely randomly.

Pair Corralation between Schlumberger and AutoNation

Considering the 90-day investment horizon Schlumberger NV is expected to under-perform the AutoNation. But the stock apears to be less risky and, when comparing its historical volatility, Schlumberger NV is 1.77 times less risky than AutoNation. The stock trades about -0.5 of its potential returns per unit of risk. The AutoNation is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16,558  in AutoNation on January 29, 2024 and sell it today you would earn a total of  430.00  from holding AutoNation or generate 2.6% return on investment over 90 days.

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

Schlumberger NV  vs.  AutoNation

Schlumberger NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

AutoNation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 11 (%) 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 Schlumberger and AutoNation

The main advantage of trading using opposite Schlumberger and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schlumberger 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 Schlumberger NV 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.