Correlation Between AutoZone and Vulcan Energy

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

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

Diversification Opportunities for AutoZone and Vulcan Energy

0.65

Correlation Coefficient

AutoZone  Vulcan Energy

Poor diversification

The 3 months correlation between AutoZone and Vulcan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Vulcan Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Energy Resources 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 Vulcan Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Energy Resources has no effect on the direction of AutoZone i.e., AutoZone and Vulcan Energy go up and down completely randomly.

Pair Corralation between AutoZone and Vulcan Energy

Assuming the 90 days horizon AutoZone is expected to generate 0.3 times more return on investment than Vulcan Energy. However, AutoZone is 3.29 times less risky than Vulcan Energy. It trades about 0.05 of its potential returns per unit of risk. Vulcan Energy Resources is currently generating about 0.01 per unit of risk. If you would invest  228,300  in AutoZone on September 25, 2024 and sell it today you would earn a total of  83,400  from holding AutoZone or generate 36.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

AutoZone  vs.  Vulcan Energy Resources

AutoZone

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vulcan Energy Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Vulcan Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoZone and Vulcan Energy

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

The idea behind AutoZone and Vulcan Energy Resources 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.