Correlation Between Advance Auto and Disney

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

Diversification Opportunities for Advance Auto and Disney

0.69

Correlation Coefficient

Advance Auto  Disney

Poor diversification

The 3 months correlation between Advance and Disney is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Advance Auto i.e., Advance Auto and Disney go up and down completely randomly.

Pair Corralation between Advance Auto and Disney

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the Disney. In addition to that, Advance Auto is 2.13 times more volatile than Walt Disney. It trades about -0.16 of its total potential returns per unit of risk. Walt Disney is currently generating about -0.19 per unit of volatility. If you would invest  11,993  in Walt Disney on January 26, 2024 and sell it today you would lose (601.00) from holding Walt Disney or give up 5.01% of portfolio value over 90 days.

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

Advance Auto Parts  vs.  Walt Disney

Advance Auto Parts

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Walt Disney

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advance Auto and Disney

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

The idea behind Advance Auto Parts and Walt Disney 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.