Correlation Between AutoNation and PetMed Express

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

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

Diversification Opportunities for AutoNation and PetMed Express

0.25

Correlation Coefficient

AutoNation  PetMed Express

Modest diversification

The 3 months correlation between AutoNation and PetMed is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and PetMed Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetMed Express 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 PetMed Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetMed Express has no effect on the direction of AutoNation i.e., AutoNation and PetMed Express go up and down completely randomly.

Pair Corralation between AutoNation and PetMed Express

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the PetMed Express. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 3.63 times less risky than PetMed Express. The stock trades about -0.01 of its potential returns per unit of risk. The PetMed Express is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  364.00  in PetMed Express on September 26, 2024 and sell it today you would earn a total of  143.00  from holding PetMed Express or generate 39.29% return on investment over 90 days.

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

AutoNation  vs.  PetMed Express

AutoNation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

PetMed Express

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PetMed Express are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, PetMed Express unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoNation and PetMed Express

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

The idea behind AutoNation and PetMed Express 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.