Correlation Between Advance Auto and Lear
Can any of the company-specific risk be diversified away by investing in both Advance Auto 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 Advance Auto and Lear 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 Lear Corporation, you can compare the effects of market volatilities on Advance Auto 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 Advance Auto with a short position of Lear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Lear.
Diversification Opportunities for Advance Auto and Lear
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Advance and Lear is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear 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 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 Advance Auto i.e., Advance Auto and Lear go up and down completely randomly.
Pair Corralation between Advance Auto and Lear
Considering the 90-day investment horizon Advance Auto Parts is expected to generate 1.06 times more return on investment than Lear. However, Advance Auto is 1.06 times more volatile than Lear Corporation. It trades about -0.09 of its potential returns per unit of risk. Lear Corporation is currently generating about -0.18 per unit of risk. If you would invest 7,788 in Advance Auto Parts on February 7, 2024 and sell it today you would lose (402.00) from holding Advance Auto Parts or give up 5.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Advance Auto Parts vs. Lear Corp.
Performance |
| Timeline |
| Advance Auto Parts |
| Lear |
Advance Auto and Lear Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advance Auto and Lear
The main advantage of trading using opposite Advance Auto and Lear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto 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.| 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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