Correlation Between Advance Auto and Conns

Can any of the company-specific risk be diversified away by investing in both Advance Auto and Conns 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 Conns 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 Conns Inc, you can compare the effects of market volatilities on Advance Auto and Conns 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 Conns. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Conns.

Diversification Opportunities for Advance Auto and Conns

-0.73

Correlation Coefficient

Advance Auto  Conns

Pay attention - limited upside

The 3 months correlation between Advance and Conns is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Conns Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conns Inc 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 Conns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conns Inc has no effect on the direction of Advance Auto i.e., Advance Auto and Conns go up and down completely randomly.

Pair Corralation between Advance Auto and Conns

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 0.47 times more return on investment than Conns. However, Advance Auto Parts is 2.14 times less risky than Conns. It trades about 0.1 of its potential returns per unit of risk. Conns Inc is currently generating about -0.08 per unit of risk. If you would invest  6,584  in Advance Auto Parts on February 12, 2024 and sell it today you would earn a total of  919.00  from holding Advance Auto Parts or generate 13.96% return on investment over 90 days.

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

Advance Auto Parts  vs.  Conns Inc

Advance Auto Parts

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Conns Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Conns Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Advance Auto and Conns

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

The idea behind Advance Auto Parts and Conns Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.