Correlation Between Autoliv and Advance Auto

Can any of the company-specific risk be diversified away by investing in both Autoliv and Advance Auto 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 Autoliv and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Autoliv and Advance Auto Parts, you can compare the effects of market volatilities on Autoliv and Advance Auto 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 Autoliv with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autoliv and Advance Auto.

Diversification Opportunities for Autoliv and Advance Auto

0.78

Correlation Coefficient

Autoliv  Advance Auto

Poor diversification

The 3 months correlation between Autoliv and Advance is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Autoliv and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Autoliv 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 Autoliv are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Autoliv i.e., Autoliv and Advance Auto go up and down completely randomly.

Pair Corralation between Autoliv and Advance Auto

Considering the 90-day investment horizon Autoliv is expected to generate 0.61 times more return on investment than Advance Auto. However, Autoliv is 1.64 times less risky than Advance Auto. It trades about 0.09 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.01 per unit of risk. If you would invest  11,872  in Autoliv on February 9, 2024 and sell it today you would earn a total of  628.00  from holding Autoliv or generate 5.29% return on investment over 90 days.

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

Autoliv  vs.  Advance Auto Parts

Autoliv

Risk-Adjusted Performance

12 of 100

Good

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

Advance Auto Parts

Risk-Adjusted Performance

10 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 10 (%) 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.

Pair Trading with Autoliv and Advance Auto

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

The idea behind Autoliv and Advance Auto Parts 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.