Correlation Between Advance Auto and First Trust

Can any of the company-specific risk be diversified away by investing in both Advance Auto and First Trust 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 Advance Auto and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advance Auto Parts and First Trust Large, you can compare the effects of market volatilities on Advance Auto and First Trust 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 Advance Auto with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and First Trust.

Diversification Opportunities for Advance Auto and First Trust

0.25

Correlation Coefficient

Advance Auto  First Trust

Modest diversification

The 3 months correlation between Advance and First is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large and Advance Auto 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 Advance Auto Parts are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Large has no effect on the direction of Advance Auto i.e., Advance Auto and First Trust go up and down completely randomly.

Pair Corralation between Advance Auto and First Trust

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 2.32 times more return on investment than First Trust. However, Advance Auto is 2.32 times more volatile than First Trust Large. It trades about 0.02 of its potential returns per unit of risk. First Trust Large is currently generating about -0.01 per unit of risk. If you would invest  6,904  in Advance Auto Parts on March 1, 2024 and sell it today you would earn a total of  114.00  from holding Advance Auto Parts or generate 1.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Advance Auto Parts  vs.  First Trust Large

Advance Auto Parts

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Advance Auto is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

First Trust Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Advance Auto and First Trust

The main advantage of trading using opposite Advance Auto and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.

The idea behind Advance Auto Parts and First Trust Large pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.