Correlation Between AutoNation and 1StdibsCom

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

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

Diversification Opportunities for AutoNation and 1StdibsCom

0.82

Correlation Coefficient

AutoNation  1StdibsCom

Very poor diversification

The 3 months correlation between AutoNation and 1StdibsCom is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and 1StdibsCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1StdibsCom 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 1StdibsCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1StdibsCom has no effect on the direction of AutoNation i.e., AutoNation and 1StdibsCom go up and down completely randomly.

Pair Corralation between AutoNation and 1StdibsCom

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.69 times more return on investment than 1StdibsCom. However, AutoNation is 1.45 times less risky than 1StdibsCom. It trades about 0.04 of its potential returns per unit of risk. 1StdibsCom is currently generating about 0.03 per unit of risk. If you would invest  11,484  in AutoNation on February 14, 2024 and sell it today you would earn a total of  5,397  from holding AutoNation or generate 47.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

AutoNation  vs.  1StdibsCom

AutoNation

Risk-Adjusted Performance

11 of 100

OK

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.

1StdibsCom

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 1StdibsCom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, 1StdibsCom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoNation and 1StdibsCom

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

The idea behind AutoNation and 1StdibsCom 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.