Correlation Between CarGurus and Group 1

Can any of the company-specific risk be diversified away by investing in both CarGurus and Group 1 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 CarGurus and Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CarGurus and Group 1 Automotive, you can compare the effects of market volatilities on CarGurus and Group 1 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 CarGurus with a short position of Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarGurus and Group 1.

Diversification Opportunities for CarGurus and Group 1

0.86

Correlation Coefficient

CarGurus  Group 1

Very poor diversification

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

Pair Corralation between CarGurus and Group 1

Given the investment horizon of 90 days CarGurus is expected to generate 0.75 times more return on investment than Group 1. However, CarGurus is 1.33 times less risky than Group 1. It trades about 0.27 of its potential returns per unit of risk. Group 1 Automotive is currently generating about 0.13 per unit of risk. If you would invest  2,899  in CarGurus on September 14, 2024 and sell it today you would earn a total of  868.00  from holding CarGurus or generate 29.94% return on investment over 90 days.

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

CarGurus  vs.  Group 1 Automotive

CarGurus

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CarGurus are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, CarGurus reported solid returns over the last few months and may actually be approaching a breakup point.

Group 1 Automotive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Group 1 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarGurus and Group 1

The main advantage of trading using opposite CarGurus and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarGurus position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind CarGurus and Group 1 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.