Correlation Between Dupont Denemours and Advance Auto

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Can any of the company-specific risk be diversified away by investing in both Dupont Denemours 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 Dupont Denemours and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dupont Denemours and Advance Auto Parts, you can compare the effects of market volatilities on Dupont Denemours 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 Dupont Denemours with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dupont Denemours and Advance Auto.

Diversification Opportunities for Dupont Denemours and Advance Auto

0.36
  Correlation Coefficient

Weak diversification

The 3 months correlation between Dupont and Advance is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dupont Denemours 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 Dupont Denemours 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 Dupont Denemours 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 Dupont Denemours i.e., Dupont Denemours and Advance Auto go up and down completely randomly.

Pair Corralation between Dupont Denemours and Advance Auto

Allowing for the 90-day total investment horizon Dupont Denemours is expected to generate 1.02 times more return on investment than Advance Auto. However, Dupont Denemours is 1.02 times more volatile than Advance Auto Parts. It trades about 0.29 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.28 per unit of risk. If you would invest  5,625  in Dupont Denemours on May 20, 2022 and sell it today you would earn a total of  570.00  from holding Dupont Denemours or generate 10.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

Dupont Denemours  vs.  Advance Auto Parts

 Performance (%) 
       Timeline  
Dupont Denemours 
Dupont Performance
0 of 100
Over the last 90 days Dupont Denemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dupont Denemours is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Dupont Price Channel

Advance Auto Parts 
Advance Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Advance Auto displayed solid returns over the last few months and may actually be approaching a breakup point.

Advance Price Channel

Dupont Denemours and Advance Auto Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dupont Denemours and Advance Auto

The main advantage of trading using opposite Dupont Denemours and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dupont Denemours 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.
The idea behind Dupont Denemours 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.
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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