Correlation Between Murphy USA and Sonic Automotive
Can any of the company-specific risk be diversified away by investing in both Murphy USA 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 Murphy USA and Sonic Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Murphy USA and Sonic Automotive, you can compare the effects of market volatilities on Murphy USA 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 Murphy USA with a short position of Sonic Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Murphy USA and Sonic Automotive.
Diversification Opportunities for Murphy USA and Sonic Automotive
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Murphy and Sonic is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Murphy USA and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Murphy USA 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 Murphy USA 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 Murphy USA i.e., Murphy USA and Sonic Automotive go up and down completely randomly.
Pair Corralation between Murphy USA and Sonic Automotive
Given the investment horizon of 90 days Murphy USA is expected to generate 8.42 times less return on investment than Sonic Automotive. But when comparing it to its historical volatility, Murphy USA is 1.72 times less risky than Sonic Automotive. It trades about 0.03 of its potential returns per unit of risk. Sonic Automotive is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 5,407 in Sonic Automotive on September 12, 2024 and sell it today you would earn a total of 1,313 from holding Sonic Automotive or generate 24.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Murphy USA vs. Sonic Automotive
Performance |
| Timeline |
| Murphy USA |
| Sonic Automotive |
Murphy USA and Sonic Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Murphy USA and Sonic Automotive
The main advantage of trading using opposite Murphy USA and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy USA 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.| Murphy USA vs. Group 1 Automotive | Murphy USA vs. Murphy Oil | Murphy USA vs. LCI Industries | Murphy USA vs. Penske Automotive Group |
| 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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