Correlation Between AutoNation and Wayfair

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

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

Diversification Opportunities for AutoNation and Wayfair

0.49

Correlation Coefficient

AutoNation  Wayfair

Very weak diversification

The 3 months correlation between AutoNation and Wayfair is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of AutoNation i.e., AutoNation and Wayfair go up and down completely randomly.

Pair Corralation between AutoNation and Wayfair

Allowing for the 90-day total investment horizon AutoNation is expected to generate 5.29 times less return on investment than Wayfair. But when comparing it to its historical volatility, AutoNation is 2.51 times less risky than Wayfair. It trades about 0.18 of its potential returns per unit of risk. Wayfair is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  4,026  in Wayfair on September 17, 2024 and sell it today you would earn a total of  1,203  from holding Wayfair or generate 29.88% return on investment over 90 days.

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

AutoNation  vs.  Wayfair

AutoNation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Wayfair

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wayfair may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AutoNation and Wayfair

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

The idea behind AutoNation and Wayfair 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.