Correlation Between ABM Industries and Sonic Automotive
Can any of the company-specific risk be diversified away by investing in both ABM Industries and Sonic 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 ABM Industries and Sonic Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABM Industries Incorporated and Sonic Automotive, you can compare the effects of market volatilities on ABM Industries and Sonic 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 ABM Industries with a short position of Sonic Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABM Industries and Sonic Automotive.
Diversification Opportunities for ABM Industries and Sonic Automotive
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ABM and Sonic is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ABM Industries Incorporated and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and ABM Industries 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 ABM Industries Incorporated are associated (or correlated) with Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of ABM Industries i.e., ABM Industries and Sonic Automotive go up and down completely randomly.
Pair Corralation between ABM Industries and Sonic Automotive
Considering the 90-day investment horizon ABM Industries is expected to generate 1.86 times less return on investment than Sonic Automotive. But when comparing it to its historical volatility, ABM Industries Incorporated is 1.31 times less risky than Sonic Automotive. It trades about 0.04 of its potential returns per unit of risk. Sonic Automotive is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 4,512 in Sonic Automotive on August 31, 2024 and sell it today you would earn a total of 2,402 from holding Sonic Automotive or generate 53.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABM Industries Incorporated vs. Sonic Automotive
Performance |
| Timeline |
| ABM Industries |
| Sonic Automotive |
ABM Industries and Sonic Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABM Industries and Sonic Automotive
The main advantage of trading using opposite ABM Industries and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABM Industries position performs unexpectedly, Sonic 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 Sonic Automotive will offset losses from the drop in Sonic Automotive's long position.| ABM Industries vs. Network 1 Technologies | ABM Industries vs. Wilhelmina | ABM Industries vs. Mader Group Limited | ABM Industries vs. First Advantage Corp |
| Sonic Automotive vs. Lithia Motors | Sonic Automotive vs. AutoNation | Sonic Automotive vs. Asbury Automotive Group | Sonic Automotive vs. Penske Automotive Group |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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