Correlation Between Advance Auto and Aarons Holdings

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

Diversification Opportunities for Advance Auto and Aarons Holdings

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Advance and Aarons is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Aarons Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons Holdings and Advance Auto 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 Advance Auto Parts are associated (or correlated) with Aarons Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons Holdings has no effect on the direction of Advance Auto i.e., Advance Auto and Aarons Holdings go up and down completely randomly.

Pair Corralation between Advance Auto and Aarons Holdings

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the Aarons Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Advance Auto Parts is 1.21 times less risky than Aarons Holdings. The stock trades about -0.1 of its potential returns per unit of risk. The Aarons Holdings is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,241  in Aarons Holdings on February 21, 2022 and sell it today you would lose (424.00)  from holding Aarons Holdings or give up 18.92% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Aarons Holdings

 Performance (%) 
      Timeline 
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 weak 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 
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 latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Aarons Price Channel

Advance Auto and Aarons Holdings Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Advance Auto and Aarons Holdings

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

Advance Auto Parts

Pair trading matchups for Advance Auto

The idea behind Advance Auto Parts and Aarons Holdings 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.

Aarons Holdings

Pair trading matchups for Aarons Holdings

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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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