Correlation Between Big Lots and AutoNation

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

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

Diversification Opportunities for Big Lots and AutoNation

-0.6

Correlation Coefficient

Big Lots  AutoNation

Excellent diversification

The 3 months correlation between Big and AutoNation is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Big Lots 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 Big Lots are associated (or correlated) with AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of Big Lots i.e., Big Lots and AutoNation go up and down completely randomly.

Pair Corralation between Big Lots and AutoNation

Considering the 90-day investment horizon Big Lots is expected to under-perform the AutoNation. In addition to that, Big Lots is 2.32 times more volatile than AutoNation. It trades about -0.05 of its total potential returns per unit of risk. AutoNation is currently generating about 0.04 per unit of volatility. If you would invest  11,838  in AutoNation on January 31, 2024 and sell it today you would earn a total of  4,705  from holding AutoNation or generate 39.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Big Lots  vs.  AutoNation

Big Lots

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. Despite sluggish performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AutoNation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 11 (%) 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.

Pair Trading with Big Lots and AutoNation

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

The idea behind Big Lots and AutoNation 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.