Correlation Between CarsalesCom and Asbury Automotive

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

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

Diversification Opportunities for CarsalesCom and Asbury Automotive

0.26

Correlation Coefficient

CarsalesCom  Asbury Automotive

Modest diversification

The 3 months correlation between CarsalesCom and Asbury is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and CarsalesCom 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 CarsalesCom Ltd ADR 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 CarsalesCom i.e., CarsalesCom and Asbury Automotive go up and down completely randomly.

Pair Corralation between CarsalesCom and Asbury Automotive

Assuming the 90 days horizon CarsalesCom is expected to generate 1.81 times less return on investment than Asbury Automotive. In addition to that, CarsalesCom is 1.23 times more volatile than Asbury Automotive Group. It trades about 0.07 of its total potential returns per unit of risk. Asbury Automotive Group is currently generating about 0.16 per unit of volatility. If you would invest  21,293  in Asbury Automotive Group on September 12, 2024 and sell it today you would earn a total of  4,381  from holding Asbury Automotive Group or generate 20.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

CarsalesCom Ltd ADR  vs.  Asbury Automotive Group

CarsalesCom ADR

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Asbury Automotive

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 12 (%) 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.

Pair Trading with CarsalesCom and Asbury Automotive

The main advantage of trading using opposite CarsalesCom and Asbury Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarsalesCom 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 CarsalesCom Ltd ADR 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.