Correlation Between AutoNation and Cazoo

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

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

Diversification Opportunities for AutoNation and Cazoo

0.47

Correlation Coefficient

AutoNation  Cazoo

Very weak diversification

The 3 months correlation between AutoNation and Cazoo is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Cazoo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cazoo Group and AutoNation 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 AutoNation are associated (or correlated) with Cazoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cazoo Group has no effect on the direction of AutoNation i.e., AutoNation and Cazoo go up and down completely randomly.

Pair Corralation between AutoNation and Cazoo

Allowing for the 90-day total investment horizon AutoNation is expected to generate 23.27 times less return on investment than Cazoo. But when comparing it to its historical volatility, AutoNation is 15.56 times less risky than Cazoo. It trades about 0.12 of its potential returns per unit of risk. Cazoo Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  460.00  in Cazoo Group on January 31, 2024 and sell it today you would earn a total of  598.00  from holding Cazoo Group or generate 130.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

AutoNation  vs.  Cazoo Group

AutoNation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, AutoNation displayed solid returns over the last few months and may actually be approaching a breakup point.

Cazoo Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cazoo Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Cazoo displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoNation and Cazoo

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

The idea behind AutoNation and Cazoo 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.