Correlation Between AutoZone and Lear
Can any of the company-specific risk be diversified away by investing in both AutoZone and Lear 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 Lear into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AutoZone and Lear Corporation, you can compare the effects of market volatilities on AutoZone and Lear 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 Lear. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and Lear.
Diversification Opportunities for AutoZone and Lear
Very poor diversification
The 3 months correlation between AutoZone and Lear is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear 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 Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of AutoZone i.e., AutoZone and Lear go up and down completely randomly.
Pair Corralation between AutoZone and Lear
Considering the 90-day investment horizon AutoZone is expected to under-perform the Lear. But the stock apears to be less risky and, when comparing its historical volatility, AutoZone is 1.72 times less risky than Lear. The stock trades about -0.31 of its potential returns per unit of risk. The Lear Corporation is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 14,166 in Lear Corporation on January 26, 2024 and sell it today you would lose (649.00) from holding Lear Corporation or give up 4.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
AutoZone vs. Lear Corp.
Performance |
| Timeline |
| AutoZone |
| Lear |
AutoZone and Lear Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AutoZone and Lear
The main advantage of trading using opposite AutoZone and Lear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone position performs unexpectedly, Lear 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 Lear will offset losses from the drop in Lear's long position.| AutoZone vs. Motorcar Parts of | AutoZone vs. Standard Motor Products | AutoZone vs. Stoneridge | AutoZone vs. Douglas Dynamics |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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