Correlation Between Magazine Luiza and Advance Auto

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

By analyzing existing cross correlation between Magazine Luiza SA and Advance Auto Parts, you can compare the effects of market volatilities on Magazine Luiza 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 Magazine Luiza with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magazine Luiza and Advance Auto.

Diversification Opportunities for Magazine Luiza and Advance Auto

-0.37

Correlation Coefficient

Magazine Luiza  Advance Auto

Very good diversification

The 3 months correlation between Magazine and Advance is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA 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 Magazine Luiza 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 Magazine Luiza SA 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 Magazine Luiza i.e., Magazine Luiza and Advance Auto go up and down completely randomly.

Pair Corralation between Magazine Luiza and Advance Auto

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the Advance Auto. In addition to that, Magazine Luiza is 1.21 times more volatile than Advance Auto Parts. It trades about -0.19 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.22 per unit of volatility. If you would invest  1,440  in Advance Auto Parts on September 18, 2024 and sell it today you would earn a total of  250.00  from holding Advance Auto Parts or generate 17.36% return on investment over 90 days.

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

Magazine Luiza SA  vs.  Advance Auto Parts

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Advance Auto Parts

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advance Auto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magazine Luiza and Advance Auto

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

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.