Correlation Between Micron Technology and Advance Auto

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

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

Diversification Opportunities for Micron Technology and Advance Auto

0.2

Correlation Coefficient

Micron Technology  Advance Auto

Modest diversification

The 3 months correlation between Micron and Advance is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology 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 Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and Advance Auto go up and down completely randomly.

Pair Corralation between Micron Technology and Advance Auto

Assuming the 90 days trading horizon Micron Technology is expected to under-perform the Advance Auto. In addition to that, Micron Technology is 1.14 times more volatile than Advance Auto Parts. It trades about -0.03 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.12 per unit of volatility. If you would invest  1,369  in Advance Auto Parts on September 26, 2024 and sell it today you would earn a total of  313.00  from holding Advance Auto Parts or generate 22.86% return on investment over 90 days.

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

Micron Technology  vs.  Advance Auto Parts

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Micron Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Advance Auto Parts

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 9 (%) 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 Micron Technology and Advance Auto

The main advantage of trading using opposite Micron Technology and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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 Stocks Directory module to find actively traded stocks across global markets.