  We investigate the effects of halo shape and its alignment with larger scale
structure on the galaxy correlation function. We base our analysis on the
galaxy formation models of Guo et al., run on the Millennium Simulations. We
quantify the importance of these effects by randomizing the angular positions
of satellite galaxies within haloes, either coherently or individually, while
keeping the distance to their respective central galaxies fixed. We find that
the effect of disrupting the alignment with larger scale structure is a ~2 per
cent decrease in the galaxy correlation function around r=1.8 Mpc/h. We find
that sphericalizing the ellipsoidal distributions of galaxies within haloes
decreases the correlation function by up to 20 per cent for r<1 Mpc/h and
increases it slightly at somewhat larger radii. Similar results apply to power
spectra and redshift-space correlation functions. Models based on the Halo
Occupation Distribution, which place galaxies spherically within haloes
according to a mean radial profile, will therefore significantly underestimate
the clustering on sub-Mpc scales. In addition, we find that halo assembly bias,
in particular the dependence of clustering on halo shape, propagates to the
clustering of galaxies. We predict that this aspect of assembly bias should be
observable through the use of extensive group catalogues.
