Correlation Between Group 1 and Penske Automotive

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

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

Diversification Opportunities for Group 1 and Penske Automotive

0.63

Correlation Coefficient

Group 1  Penske Automotive

Poor diversification

The 3 months correlation between Group and Penske is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Group 1 Automotive and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive and Group 1 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 Group 1 Automotive are associated (or correlated) with Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of Group 1 i.e., Group 1 and Penske Automotive go up and down completely randomly.

Pair Corralation between Group 1 and Penske Automotive

Considering the 90-day investment horizon Group 1 Automotive is expected to generate 1.37 times more return on investment than Penske Automotive. However, Group 1 is 1.37 times more volatile than Penske Automotive Group. It trades about 0.1 of its potential returns per unit of risk. Penske Automotive Group is currently generating about 0.0 per unit of risk. If you would invest  37,676  in Group 1 Automotive on August 30, 2024 and sell it today you would earn a total of  5,100  from holding Group 1 Automotive or generate 13.54% return on investment over 90 days.

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

Group 1 Automotive  vs.  Penske Automotive Group

Group 1 Automotive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Penske Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Penske Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Penske Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Group 1 and Penske Automotive

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

The idea behind Group 1 Automotive and Penske 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.