Correlation Between Vipshop Holdings and Advance Auto

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

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

Diversification Opportunities for Vipshop Holdings and Advance Auto

-0.35

Correlation Coefficient

Vipshop Holdings  Advance Auto

Very good diversification

The 3 months correlation between Vipshop and Advance is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vipshop Holdings Limited 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 Vipshop Holdings 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 Vipshop Holdings Limited 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 Vipshop Holdings i.e., Vipshop Holdings and Advance Auto go up and down completely randomly.

Pair Corralation between Vipshop Holdings and Advance Auto

Given the investment horizon of 90 days Vipshop Holdings is expected to generate 1.45 times less return on investment than Advance Auto. In addition to that, Vipshop Holdings is 1.03 times more volatile than Advance Auto Parts. It trades about 0.07 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.11 per unit of volatility. If you would invest  3,922  in Advance Auto Parts on September 12, 2024 and sell it today you would earn a total of  784.00  from holding Advance Auto Parts or generate 19.99% return on investment over 90 days.

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

Vipshop Holdings Limited  vs.  Advance Auto Parts

Vipshop Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vipshop Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Vipshop Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Even with relatively unfluctuating basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vipshop Holdings and Advance Auto

The main advantage of trading using opposite Vipshop Holdings and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vipshop Holdings 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 Vipshop Holdings Limited 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.