Correlation Between Advance Auto and ODP Corp
Can any of the company-specific risk be diversified away by investing in both Advance Auto and ODP Corp 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 ODP Corp 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 ODP Corp, you can compare the effects of market volatilities on Advance Auto and ODP Corp 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 ODP Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and ODP Corp.
Diversification Opportunities for Advance Auto and ODP Corp
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Advance and ODP is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and ODP Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ODP Corp 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 ODP Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ODP Corp has no effect on the direction of Advance Auto i.e., Advance Auto and ODP Corp go up and down completely randomly.
Pair Corralation between Advance Auto and ODP Corp
Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the ODP Corp. In addition to that, Advance Auto is 1.31 times more volatile than ODP Corp. It trades about -0.05 of its total potential returns per unit of risk. ODP Corp is currently generating about 0.03 per unit of volatility. If you would invest 4,124 in ODP Corp on February 4, 2024 and sell it today you would earn a total of 1,050 from holding ODP Corp or generate 25.46% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Advance Auto Parts vs. ODP Corp
Performance |
Timeline |
Advance Auto Parts |
ODP Corp |
Advance Auto and ODP Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Advance Auto and ODP Corp
The main advantage of trading using opposite Advance Auto and ODP Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, ODP Corp 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 ODP Corp will offset losses from the drop in ODP Corp's long position.Advance Auto vs. Lithia Motors | Advance Auto vs. AutoNation | Advance Auto vs. Asbury Automotive Group | Advance Auto vs. Penske Automotive Group |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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