Correlation Between Destination and AutoNation

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

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

Diversification Opportunities for Destination and AutoNation

-0.74

Correlation Coefficient

Destination  AutoNation

Pay attention - limited upside

The 3 months correlation between Destination and AutoNation is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation and Destination 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 Destination XL Group 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 Destination i.e., Destination and AutoNation go up and down completely randomly.

Pair Corralation between Destination and AutoNation

Given the investment horizon of 90 days Destination XL Group is expected to under-perform the AutoNation. But the stock apears to be less risky and, when comparing its historical volatility, Destination XL Group is 1.03 times less risky than AutoNation. The stock trades about -0.09 of its potential returns per unit of risk. The AutoNation is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  15,995  in AutoNation on February 3, 2024 and sell it today you would earn a total of  332.00  from holding AutoNation or generate 2.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Destination XL Group  vs.  AutoNation

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

AutoNation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AutoNation displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Destination and AutoNation

The main advantage of trading using opposite Destination and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Destination 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 Destination XL Group 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.