Correlation Between AutoZone and Etsy

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

By analyzing existing cross correlation between AutoZone and Etsy Inc, you can compare the effects of market volatilities on AutoZone and Etsy 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 Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and Etsy.

Diversification Opportunities for AutoZone and Etsy

0.8

Correlation Coefficient

AutoZone  Etsy

Very poor diversification

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

Pair Corralation between AutoZone and Etsy

Assuming the 90 days horizon AutoZone is expected to generate 0.53 times more return on investment than Etsy. However, AutoZone is 1.89 times less risky than Etsy. It trades about 0.16 of its potential returns per unit of risk. Etsy Inc is currently generating about 0.08 per unit of risk. If you would invest  269,500  in AutoZone on September 23, 2024 and sell it today you would earn a total of  42,200  from holding AutoZone or generate 15.66% return on investment over 90 days.

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

AutoZone  vs.  Etsy Inc

AutoZone

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone reported solid returns over the last few months and may actually be approaching a breakup point.

Etsy Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Etsy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoZone and Etsy

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

The idea behind AutoZone and Etsy Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.