Correlation Between AutoZone and Best Buy
Can any of the company-specific risk be diversified away by investing in both AutoZone and Best Buy 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 Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AutoZone and Best Buy Co, you can compare the effects of market volatilities on AutoZone and Best Buy 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 Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and Best Buy.
Diversification Opportunities for AutoZone and Best Buy
Poor diversification
The 3 months correlation between AutoZone and Best is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of AutoZone i.e., AutoZone and Best Buy go up and down completely randomly.
Pair Corralation between AutoZone and Best Buy
Considering the 90-day investment horizon AutoZone is expected to generate 0.61 times more return on investment than Best Buy. However, AutoZone is 1.65 times less risky than Best Buy. It trades about -0.18 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.21 per unit of risk. If you would invest 307,609 in AutoZone on February 7, 2024 and sell it today you would lose (11,777) from holding AutoZone or give up 3.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AutoZone vs. Best Buy Co
Performance |
| Timeline |
| AutoZone |
| Best Buy |
AutoZone and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AutoZone and Best Buy
The main advantage of trading using opposite AutoZone and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy'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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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