Correlation Between CarGurus and Sonic Automotive

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

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

Diversification Opportunities for CarGurus and Sonic Automotive

0.79

Correlation Coefficient

CarGurus  Sonic Automotive

Poor diversification

The 3 months correlation between CarGurus and Sonic is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CarGurus and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic 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 Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of CarGurus i.e., CarGurus and Sonic Automotive go up and down completely randomly.

Pair Corralation between CarGurus and Sonic Automotive

Given the investment horizon of 90 days CarGurus is expected to generate 0.65 times more return on investment than Sonic Automotive. However, CarGurus is 1.53 times less risky than Sonic Automotive. It trades about 0.27 of its potential returns per unit of risk. Sonic 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	Significant
Accuracy	100.0%
Values	Daily Returns

CarGurus  vs.  Sonic 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.

Sonic Automotive

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sonic Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak basic indicators, Sonic Automotive demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarGurus and Sonic Automotive

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

The idea behind CarGurus and Sonic 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.