Correlation Between Advance Auto and Dicks Sporting

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

Diversification Opportunities for Advance Auto and Dicks Sporting

0.8

Correlation Coefficient

Advance Auto  Dicks Sporting

Very poor diversification

The 3 months correlation between Advance and Dicks is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Dicks Sporting Goods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dicks Sporting Goods 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 Dicks Sporting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dicks Sporting Goods has no effect on the direction of Advance Auto i.e., Advance Auto and Dicks Sporting go up and down completely randomly.

Pair Corralation between Advance Auto and Dicks Sporting

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 1.6 times more return on investment than Dicks Sporting. However, Advance Auto is 1.6 times more volatile than Dicks Sporting Goods. It trades about 0.01 of its potential returns per unit of risk. Dicks Sporting Goods is currently generating about -0.07 per unit of risk. If you would invest  4,501  in Advance Auto Parts on August 30, 2024 and sell it today you would lose (57.00) from holding Advance Auto Parts or give up 1.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Advance Auto Parts  vs.  Dicks Sporting Goods

Advance Auto Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Advance Auto is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Dicks Sporting Goods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dicks Sporting Goods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Advance Auto and Dicks Sporting

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

The idea behind Advance Auto Parts and Dicks Sporting Goods 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 the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.