Correlation Between Advance Auto and Chevron Corp

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

Diversification Opportunities for Advance Auto and Chevron Corp

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between Advance and Chevron is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Advance Auto i.e., Advance Auto and Chevron Corp go up and down completely randomly.

Pair Corralation between Advance Auto and Chevron Corp

Considering the 90-day investment horizon Advance Auto is expected to generate 2.42 times less return on investment than Chevron Corp. But when comparing it to its historical volatility, Advance Auto Parts is 1.1 times less risky than Chevron Corp. It trades about 0.03 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,224  in Chevron Corp on May 9, 2022 and sell it today you would earn a total of  7,140  from holding Chevron Corp or generate 86.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Chevron Corp

 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 very healthy basic indicators, Advance Auto is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the insiders.

Advance Price Channel

Chevron Corp 
Chevron Performance
0 of 100
Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

Advance Auto and Chevron Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Chevron Corp

The main advantage of trading using opposite Advance Auto and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.
The idea behind Advance Auto Parts and Chevron Corp 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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