Correlation Between United States and Advance Auto

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

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

Diversification Opportunities for United States and Advance Auto

0.02

Correlation Coefficient

United States  Advance Auto

Significant diversification

The 3 months correlation between United and Advance is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel 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 United States 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 United States Steel 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 United States i.e., United States and Advance Auto go up and down completely randomly.

Pair Corralation between United States and Advance Auto

Assuming the 90 days trading horizon United States Steel is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, United States Steel is 1.07 times less risky than Advance Auto. The stock trades about -0.05 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,358  in Advance Auto Parts on September 25, 2024 and sell it today you would earn a total of  324.00  from holding Advance Auto Parts or generate 23.86% return on investment over 90 days.

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

United States Steel  vs.  Advance Auto Parts

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 United States and Advance Auto

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

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.