Correlation Between JP Morgan and Advance Auto

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

Diversification Opportunities for JP Morgan and Advance Auto

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between JP Morgan and Advance is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding JP Morgan Chase 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 JP Morgan 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 JP Morgan Chase 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 JP Morgan i.e., JP Morgan and Advance Auto go up and down completely randomly.

Pair Corralation between JP Morgan and Advance Auto

Considering the 90-day investment horizon JP Morgan is expected to generate 2.68 times less return on investment than Advance Auto. In addition to that, JP Morgan is 1.13 times more volatile than Advance Auto Parts. It trades about 0.06 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.19 per unit of volatility. If you would invest  18,175  in Advance Auto Parts on May 11, 2022 and sell it today you would earn a total of  1,162  from holding Advance Auto Parts or generate 6.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

JP Morgan Chase  vs.  Advance Auto Parts

 Performance (%) 
       Timeline  
JP Morgan Chase 
JP Morgan Performance
0 of 100
Over the last 90 days JP Morgan Chase has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, JP Morgan is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

JP Morgan 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

JP Morgan and Advance Auto Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with JP Morgan and Advance Auto

The main advantage of trading using opposite JP Morgan and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JP Morgan 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 JP Morgan Chase 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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