Correlation Between Advance Auto and Murphy USA

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

Diversification Opportunities for Advance Auto and Murphy USA

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Advance and Murphy is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Murphy USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy USA 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 Murphy USA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy USA has no effect on the direction of Advance Auto i.e., Advance Auto and Murphy USA go up and down completely randomly.

Pair Corralation between Advance Auto and Murphy USA

Considering the 90-day investment horizon Advance Auto is expected to generate 1.37 times less return on investment than Murphy USA. But when comparing it to its historical volatility, Advance Auto Parts is 1.14 times less risky than Murphy USA. It trades about 0.24 of its potential returns per unit of risk. Murphy USA is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  23,084  in Murphy USA on May 16, 2022 and sell it today you would earn a total of  6,099  from holding Murphy USA or generate 26.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Murphy USA

 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 recent stock price disarray, may contribute to short-term losses for the insiders.

Advance Price Channel

Murphy USA 
Murphy Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Murphy USA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Murphy USA sustained solid returns over the last few months and may actually be approaching a breakup point.

Murphy Price Channel

Advance Auto and Murphy USA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Murphy USA

The main advantage of trading using opposite Advance Auto and Murphy USA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Murphy USA 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 Murphy USA will offset losses from the drop in Murphy USA's long position.
The idea behind Advance Auto Parts and Murphy USA 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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