Correlation Between Advance Auto and Archer Daniels

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

Diversification Opportunities for Advance Auto and Archer Daniels

0.59

Correlation Coefficient

Advance Auto  Archer Daniels

Very weak diversification

The 3 months correlation between Advance and Archer is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Archer Daniels Midland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Daniels Midland 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 Archer Daniels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Daniels Midland has no effect on the direction of Advance Auto i.e., Advance Auto and Archer Daniels go up and down completely randomly.

Pair Corralation between Advance Auto and Archer Daniels

Assuming the 90 days trading horizon Advance Auto Parts is expected to generate 4.49 times more return on investment than Archer Daniels. However, Advance Auto is 4.49 times more volatile than Archer Daniels Midland. It trades about 0.13 of its potential returns per unit of risk. Archer Daniels Midland is currently generating about 0.13 per unit of risk. If you would invest  1,166  in Advance Auto Parts on April 24, 2025 and sell it today you would earn a total of  758.00  from holding Advance Auto Parts or generate 65.01% return on investment over 90 days.

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

Advance Auto Parts  vs.  Archer Daniels Midland

Advance Auto Parts

Risk-Adjusted Performance

OK

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. Despite somewhat weak basic indicators, Advance Auto sustained solid returns over the last few months and may actually be approaching a breakup point.

Archer Daniels Midland

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Archer Daniels Midland are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Archer Daniels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advance Auto and Archer Daniels

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

The idea behind Advance Auto Parts and Archer Daniels Midland 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.