Correlation Between Advance Auto and International Business

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

Diversification Opportunities for Advance Auto and International Business

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Advance and International is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Advance Auto i.e., Advance Auto and International Business go up and down completely randomly.

Pair Corralation between Advance Auto and International Business

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the International Business. In addition to that, Advance Auto is 1.44 times more volatile than International Business Machines. It trades about -0.06 of its total potential returns per unit of risk. International Business Machines is currently generating about -0.02 per unit of volatility. If you would invest  12,672  in International Business Machines on July 6, 2022 and sell it today you would lose (122.00)  from holding International Business Machines or give up 0.96% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  International Business Machine

 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

International Business 
International Performance
0 of 100
Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest sluggish performance, the Stock's fundamental drivers remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

International Price Channel

Advance Auto and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and International Business

The main advantage of trading using opposite Advance Auto and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.
Advance Auto vs. Best Buy Company
The idea behind Advance Auto Parts and International Business Machines 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.
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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