Correlation Between Sonic Automotive and Global Payments

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

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

Diversification Opportunities for Sonic Automotive and Global Payments

-0.34

Correlation Coefficient

Sonic Automotive  Global Payments

Very good diversification

The 3 months correlation between Sonic and Global is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Automotive and Global Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Payments and Sonic Automotive 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 Sonic Automotive are associated (or correlated) with Global Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Payments has no effect on the direction of Sonic Automotive i.e., Sonic Automotive and Global Payments go up and down completely randomly.

Pair Corralation between Sonic Automotive and Global Payments

Considering the 90-day investment horizon Sonic Automotive is expected to generate 1.34 times more return on investment than Global Payments. However, Sonic Automotive is 1.34 times more volatile than Global Payments. It trades about 0.25 of its potential returns per unit of risk. Global Payments is currently generating about -0.2 per unit of risk. If you would invest  4,935  in Sonic Automotive on February 15, 2024 and sell it today you would earn a total of  989.00  from holding Sonic Automotive or generate 20.04% return on investment over 90 days.

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

Sonic Automotive  vs.  Global Payments

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 weak basic indicators, Sonic Automotive may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Global Payments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Payments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sonic Automotive and Global Payments

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

The idea behind Sonic Automotive and Global Payments 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.