Correlation Between National Vision and Sonic Automotive

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

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

Diversification Opportunities for National Vision and Sonic Automotive

-0.55

Correlation Coefficient

National Vision  Sonic Automotive

Excellent diversification

The 3 months correlation between National and Sonic is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding National Vision Holdings and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and National Vision 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 National Vision Holdings are associated (or correlated) with Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of National Vision i.e., National Vision and Sonic Automotive go up and down completely randomly.

Pair Corralation between National Vision and Sonic Automotive

Considering the 90-day investment horizon National Vision Holdings is expected to under-perform the Sonic Automotive. In addition to that, National Vision is 1.21 times more volatile than Sonic Automotive. It trades about -0.24 of its total potential returns per unit of risk. Sonic Automotive is currently generating about 0.07 per unit of volatility. If you would invest  5,220  in Sonic Automotive on March 13, 2024 and sell it today you would earn a total of  496.00  from holding Sonic Automotive or generate 9.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

National Vision Holdings  vs.  Sonic Automotive

National Vision Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Vision Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sonic Automotive

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Sonic Automotive may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with National Vision and Sonic Automotive

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

The idea behind National Vision Holdings and Sonic 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.