Correlation Between AutoZone and Tractor Supply

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

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

Diversification Opportunities for AutoZone and Tractor Supply

0.92

Correlation Coefficient

AutoZone  Tractor Supply

Almost no diversification

The 3 months correlation between AutoZone and Tractor is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Tractor Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tractor Supply and AutoZone 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 AutoZone are associated (or correlated) with Tractor Supply. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tractor Supply has no effect on the direction of AutoZone i.e., AutoZone and Tractor Supply go up and down completely randomly.

Pair Corralation between AutoZone and Tractor Supply

Considering the 90-day investment horizon AutoZone is expected to generate 0.85 times more return on investment than Tractor Supply. However, AutoZone is 1.18 times less risky than Tractor Supply. It trades about 0.06 of its potential returns per unit of risk. Tractor Supply is currently generating about 0.03 per unit of risk. If you would invest  205,458  in AutoZone on January 24, 2024 and sell it today you would earn a total of  90,708  from holding AutoZone or generate 44.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

AutoZone  vs.  Tractor Supply

AutoZone

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Tractor Supply

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tractor Supply are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Tractor Supply displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoZone and Tractor Supply

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

The idea behind AutoZone and Tractor Supply 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.