Correlation Between Basic Materials and Advance Auto
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Advance Auto Parts, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Advance Auto.
Diversification Opportunities for Basic Materials and Advance Auto
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Basic and Advance is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials 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 Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and Advance Auto go up and down completely randomly.
Pair Corralation between Basic Materials and Advance Auto
Assuming the 90 days trading horizon Basic Materials is expected to generate 0.36 times more return on investment than Advance Auto. However, Basic Materials is 2.81 times less risky than Advance Auto. It trades about 0.0 of its potential returns per unit of risk. Advance Auto Parts is currently generating about -0.05 per unit of risk. If you would invest 592,195 in Basic Materials on August 26, 2024 and sell it today you would lose (15,954) from holding Basic Materials or give up 2.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Basic Materials vs. Advance Auto Parts
Performance |
| Timeline |
Basic Materials and Advance Auto Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Advance Auto Parts
Pair trading matchups for Advance Auto
Pair Trading with Basic Materials and Advance Auto
The main advantage of trading using opposite Basic Materials and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Prudential Financial | Basic Materials vs. G2D Investments | Basic Materials vs. Micron Technology | Basic Materials vs. CVS Health |
| Advance Auto vs. Monster Beverage | Advance Auto vs. Raytheon Technologies | Advance Auto vs. BIONTECH SE DRN | Advance Auto vs. Micron Technology |
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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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