Correlation Between AutoZone and Tuesday Morning

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

By analyzing existing cross correlation between AutoZone and Tuesday Morning Corp, you can compare the effects of market volatilities on AutoZone and Tuesday Morning 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 Tuesday Morning. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and Tuesday Morning.

Diversification Opportunities for AutoZone and Tuesday Morning

-0.21

Correlation Coefficient

AutoZone  Tuesday Morning

Very good diversification

The 3 months correlation between AutoZone and Tuesday is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Tuesday Morning Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tuesday Morning Corp 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 Tuesday Morning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tuesday Morning Corp has no effect on the direction of AutoZone i.e., AutoZone and Tuesday Morning go up and down completely randomly.

Pair Corralation between AutoZone and Tuesday Morning

Considering the 90-day investment horizon AutoZone is expected to generate 13.03 times less return on investment than Tuesday Morning. But when comparing it to its historical volatility, AutoZone is 17.31 times less risky than Tuesday Morning. It trades about 0.08 of its potential returns per unit of risk. Tuesday Morning Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.03  in Tuesday Morning Corp on January 24, 2024 and sell it today you would lose (0.02) from holding Tuesday Morning Corp or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	34.3%
Values	Daily Returns

AutoZone  vs.  Tuesday Morning Corp

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.

Tuesday Morning Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tuesday Morning Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Tuesday Morning is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with AutoZone and Tuesday Morning

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

The idea behind AutoZone and Tuesday Morning Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.