Correlation Between Autozone and Advance Auto

By analyzing existing cross correlation between Autozone and Advance Auto Parts, you can compare the effects of market volatilities on Autozone and Advance Auto 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 Autozone with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autozone and Advance Auto.

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Can any of the company-specific risk be diversified away by investing in both Autozone and Advance Auto 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 Autozone and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Autozone and Advance Auto

0.79
  Correlation Coefficient
Autozone
Advance Auto Parts

Poor diversification

The 3 months correlation between Autozone and Advance is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Autozone and Advance Auto Parts in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Autozone 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 Autozone are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Autozone i.e., Autozone and Advance Auto go up and down completely randomly.

Pair Corralation between Autozone and Advance Auto

Considering the 90-day investment horizon Autozone is expected to generate 1.15 times more return on investment than Advance Auto. However, Autozone is 1.15 times more volatile than Advance Auto Parts. It trades about 0.05 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.0 per unit of risk. If you would invest  186,488  in Autozone on October 23, 2021 and sell it today you would earn a total of  6,783  from holding Autozone or generate 3.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Autozone  vs.  Advance Auto Parts

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

Autozone Price Channel

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

Advance Price Channel

Autozone and Advance Auto Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Autozone and Advance Auto

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

Autozone

Pair trading matchups for Autozone

The idea behind Autozone and Advance Auto Parts 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.

Advance Auto Parts

Pair trading matchups for Advance Auto

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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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