Correlation Between AutoZone and RH
Can any of the company-specific risk be diversified away by investing in both AutoZone and RH 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 RH into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AutoZone and RH, you can compare the effects of market volatilities on AutoZone and RH 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 RH. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and RH.
Diversification Opportunities for AutoZone and RH
Poor diversification
The 3 months correlation between AutoZone and RH is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of AutoZone i.e., AutoZone and RH go up and down completely randomly.
Pair Corralation between AutoZone and RH
Considering the 90-day investment horizon AutoZone is expected to generate 5.4 times less return on investment than RH. But when comparing it to its historical volatility, AutoZone is 2.36 times less risky than RH. It trades about 0.05 of its potential returns per unit of risk. RH is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 33,371 in RH on October 31, 2024 and sell it today you would earn a total of 8,830 from holding RH or generate 26.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AutoZone vs. RH
Performance |
| Timeline |
| AutoZone |
| RH |
AutoZone and RH Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AutoZone and RH
The main advantage of trading using opposite AutoZone and RH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone position performs unexpectedly, RH 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 RH will offset losses from the drop in RH's long position.| AutoZone vs. Advance Auto Parts | AutoZone vs. Tractor Supply | AutoZone vs. Genuine Parts Co | AutoZone vs. Five Below |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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