Correlation Between Advance Auto and Bed Bath

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Can any of the company-specific risk be diversified away by investing in both Advance Auto and Bed Bath 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 Bed Bath 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 Bed Bath Beyond, you can compare the effects of market volatilities on Advance Auto and Bed Bath 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 Bed Bath. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Bed Bath.

Diversification Opportunities for Advance Auto and Bed Bath

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Advance and Bed Bath is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Bed Bath Beyond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bed Bath Beyond 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 Bed Bath. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bed Bath Beyond has no effect on the direction of Advance Auto i.e., Advance Auto and Bed Bath go up and down completely randomly.

Pair Corralation between Advance Auto and Bed Bath

Considering the 90-day investment horizon Advance Auto is expected to generate 12.92 times less return on investment than Bed Bath. But when comparing it to its historical volatility, Advance Auto Parts is 8.24 times less risky than Bed Bath. It trades about 0.31 of its potential returns per unit of risk. Bed Bath Beyond is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  496.00  in Bed Bath Beyond on May 18, 2022 and sell it today you would earn a total of  1,104  from holding Bed Bath Beyond or generate 222.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Bed Bath Beyond

 Performance (%) 
       Timeline  
Advance Auto Parts 
Advance Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish basic indicators, Advance Auto may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Advance Price Channel

Bed Bath Beyond 
Bed Bath Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bed Bath Beyond are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish fundamental drivers, Bed Bath showed solid returns over the last few months and may actually be approaching a breakup point.

Bed Bath Price Channel

Advance Auto and Bed Bath Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Bed Bath

The main advantage of trading using opposite Advance Auto and Bed Bath positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Bed Bath 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 Bed Bath will offset losses from the drop in Bed Bath's long position.
The idea behind Advance Auto Parts and Bed Bath Beyond 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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