Correlation Between Copart and Asbury Automotive

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

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

Diversification Opportunities for Copart and Asbury Automotive

0.87

Correlation Coefficient

Copart  Asbury Automotive

Very poor diversification

The 3 months correlation between Copart and Asbury is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Copart Inc and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and Copart 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 Copart Inc are associated (or correlated) with Asbury Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asbury Automotive has no effect on the direction of Copart i.e., Copart and Asbury Automotive go up and down completely randomly.

Pair Corralation between Copart and Asbury Automotive

Assuming the 90 days horizon Copart is expected to generate 1.92 times less return on investment than Asbury Automotive. But when comparing it to its historical volatility, Copart Inc is 1.14 times less risky than Asbury Automotive. It trades about 0.03 of its potential returns per unit of risk. Asbury Automotive Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  20,200  in Asbury Automotive Group on September 24, 2024 and sell it today you would earn a total of  3,200  from holding Asbury Automotive Group or generate 15.84% return on investment over 90 days.

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

Copart Inc  vs.  Asbury Automotive Group

Copart Inc

Risk-Adjusted Performance

10 of 100

Good

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

Asbury Automotive

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Copart and Asbury Automotive

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

The idea behind Copart Inc and Asbury Automotive Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.