Correlation Between Advance Auto and Hong Kong

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

Diversification Opportunities for Advance Auto and Hong Kong

0.37

Correlation Coefficient

Advance Auto  Hong Kong

Weak diversification

The 3 months correlation between Advance and Hong is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Hong Kong and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong 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 Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong has no effect on the direction of Advance Auto i.e., Advance Auto and Hong Kong go up and down completely randomly.

Pair Corralation between Advance Auto and Hong Kong

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the Hong Kong. In addition to that, Advance Auto is 3.88 times more volatile than Hong Kong and. It trades about -0.15 of its total potential returns per unit of risk. Hong Kong and is currently generating about 0.3 per unit of volatility. If you would invest  74.00  in Hong Kong and on January 20, 2024 and sell it today you would earn a total of  3.00  from holding Hong Kong and or generate 4.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Advance Auto Parts  vs.  Hong Kong and

Advance Auto Parts

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Hong Kong

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hong Kong and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Hong Kong is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Advance Auto and Hong Kong

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

The idea behind Advance Auto Parts and Hong Kong and 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.