Correlation Between Advance Auto and Penske Automotive
Can any of the company-specific risk be diversified away by investing in both Advance Auto 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 Advance Auto and Penske Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advance Auto Parts and Penske Automotive Group, you can compare the effects of market volatilities on Advance Auto 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 Advance Auto with a short position of Penske Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Penske Automotive.
Diversification Opportunities for Advance Auto and Penske Automotive
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Advance and Penske is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive and Advance Auto 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 Advance Auto Parts 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 Advance Auto i.e., Advance Auto and Penske Automotive go up and down completely randomly.
Pair Corralation between Advance Auto and Penske Automotive
Considering the 90-day investment horizon Advance Auto Parts is expected to generate 2.31 times more return on investment than Penske Automotive. However, Advance Auto is 2.31 times more volatile than Penske Automotive Group. It trades about 0.22 of its potential returns per unit of risk. Penske Automotive Group is currently generating about 0.29 per unit of risk. If you would invest 3,709 in Advance Auto Parts on August 27, 2024 and sell it today you would earn a total of 633.00 from holding Advance Auto Parts or generate 17.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Advance Auto Parts vs. Penske Automotive Group
Performance |
| Timeline |
| Advance Auto Parts |
| Penske Automotive |
Advance Auto and Penske Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advance Auto and Penske Automotive
The main advantage of trading using opposite Advance Auto and Penske Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto 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.| Advance Auto vs. AutoZone | Advance Auto vs. Tractor Supply | Advance Auto vs. Genuine Parts Co | Advance Auto vs. Five Below |
| Penske Automotive vs. Kingsway Financial Services | Penske Automotive vs. KAR Auction Services | Penske Automotive vs. Cango Inc | Penske Automotive vs. Vroom Inc |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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