Correlation Between Aarons Holdings and Advance Auto

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Can any of the company-specific risk be diversified away by investing in both Aarons Holdings and Advance Auto 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 Aarons Holdings and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aarons Holdings and Advance Auto Parts, you can compare the effects of market volatilities on Aarons Holdings and Advance Auto 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 Aarons Holdings with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aarons Holdings and Advance Auto.

Diversification Opportunities for Aarons Holdings and Advance Auto

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between Aarons and Advance is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Aarons Holdings and Advance Auto Parts in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Aarons Holdings 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 Aarons Holdings are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Aarons Holdings i.e., Aarons Holdings and Advance Auto go up and down completely randomly.

Pair Corralation between Aarons Holdings and Advance Auto

Considering the 90-day investment horizon Aarons Holdings is expected to under-perform the Advance Auto. In addition to that, Aarons Holdings is 1.28 times more volatile than Advance Auto Parts. It trades about -0.06 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about -0.05 per unit of volatility. If you would invest  22,919  in Advance Auto Parts on February 18, 2022 and sell it today you would lose (3,369)  from holding Advance Auto Parts or give up 14.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Aarons Holdings  vs.  Advance Auto Parts

 Performance (%) 
      Timeline 
Aarons Holdings 
Aarons Performance
0 of 100
Over the last 90 days Aarons Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Aarons Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Aarons Price Channel

Advance Auto Parts 
Advance Performance
0 of 100
Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.

Advance Price Channel

Aarons Holdings and Advance Auto Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Aarons Holdings and Advance Auto

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

Advance Auto Parts

Pair trading matchups for Advance Auto

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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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