Correlation Between Asbury Automotive and Expand Energy

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

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

Diversification Opportunities for Asbury Automotive and Expand Energy

0.86

Correlation Coefficient

Asbury Automotive  Expand Energy

Very poor diversification

The 3 months correlation between Asbury and Expand is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand Energy and Asbury 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 Asbury Automotive Group are associated (or correlated) with Expand Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expand Energy has no effect on the direction of Asbury Automotive i.e., Asbury Automotive and Expand Energy go up and down completely randomly.

Pair Corralation between Asbury Automotive and Expand Energy

Considering the 90-day investment horizon Asbury Automotive is expected to generate 2.03 times less return on investment than Expand Energy. In addition to that, Asbury Automotive is 1.14 times more volatile than Expand Energy. It trades about 0.13 of its total potential returns per unit of risk. Expand Energy is currently generating about 0.3 per unit of volatility. If you would invest  7,262  in Expand Energy on September 14, 2024 and sell it today you would earn a total of  2,698  from holding Expand Energy or generate 37.15% return on investment over 90 days.

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

Asbury Automotive Group  vs.  Expand Energy

Asbury Automotive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Expand Energy

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Expand Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asbury Automotive and Expand Energy

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

The idea behind Asbury Automotive Group and Expand Energy 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.