Correlation Between USS and Penske Automotive

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

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

Diversification Opportunities for USS and Penske Automotive

0.74

Correlation Coefficient

USS  Penske Automotive

Poor diversification

The 3 months correlation between USS and Penske is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding USS Co and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive and USS 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 USS Co 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 USS i.e., USS and Penske Automotive go up and down completely randomly.

Pair Corralation between USS and Penske Automotive

Assuming the 90 days horizon USS is expected to generate 5.92 times less return on investment than Penske Automotive. But when comparing it to its historical volatility, USS Co is 1.09 times less risky than Penske Automotive. It trades about 0.01 of its potential returns per unit of risk. Penske Automotive Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  14,087  in Penske Automotive Group on September 24, 2024 and sell it today you would earn a total of  913.00  from holding Penske Automotive Group or generate 6.48% return on investment over 90 days.

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

USS Co  vs.  Penske Automotive Group

USS Co

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in USS Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, USS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Penske Automotive

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with USS and Penske Automotive

The main advantage of trading using opposite USS and Penske Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USS 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 USS Co 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 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.