Correlation Between Designer Brands and Advance Auto
Can any of the company-specific risk be diversified away by investing in both Designer Brands 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 Designer Brands and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Designer Brands and Advance Auto Parts, you can compare the effects of market volatilities on Designer Brands 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 Designer Brands with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and Advance Auto.
Diversification Opportunities for Designer Brands and Advance Auto
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Designer and Advance is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands 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 Designer Brands 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 Designer Brands 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 Designer Brands i.e., Designer Brands and Advance Auto go up and down completely randomly.
Pair Corralation between Designer Brands and Advance Auto
Considering the 90-day investment horizon Designer Brands is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, Designer Brands is 1.3 times less risky than Advance Auto. The stock trades about -0.16 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,674 in Advance Auto Parts on August 26, 2024 and sell it today you would earn a total of 405.00 from holding Advance Auto Parts or generate 11.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Designer Brands vs. Advance Auto Parts
Performance |
| Timeline |
| Designer Brands |
| Advance Auto Parts |
Designer Brands and Advance Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Designer Brands and Advance Auto
The main advantage of trading using opposite Designer Brands and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands 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.| Designer Brands vs. Wolverine World Wide | Designer Brands vs. Weyco Group | Designer Brands vs. Steven Madden | Designer Brands vs. Rocky Brands |
| Advance Auto vs. AutoZone | Advance Auto vs. Tractor Supply | Advance Auto vs. Genuine Parts Co | Advance Auto 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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