Correlation Between Murphy USA and Advance Auto

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

Diversification Opportunities for Murphy USA and Advance Auto

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Murphy and Advance is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Murphy USA 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 Murphy USA 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 Murphy USA 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 Murphy USA i.e., Murphy USA and Advance Auto go up and down completely randomly.

Pair Corralation between Murphy USA and Advance Auto

Given the investment horizon of 90 days Murphy USA is expected to generate 1.36 times more return on investment than Advance Auto. However, Murphy USA is 1.36 times more volatile than Advance Auto Parts. It trades about 0.16 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.21 per unit of risk. If you would invest  26,679  in Murphy USA on May 11, 2022 and sell it today you would earn a total of  1,796  from holding Murphy USA or generate 6.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Murphy USA  vs.  Advance Auto Parts

 Performance (%) 
       Timeline  
Murphy USA 
Murphy Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Murphy USA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak 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 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

Murphy USA and Advance Auto Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Murphy USA and Advance Auto

The main advantage of trading using opposite Murphy USA and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy USA 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 Murphy USA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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