Correlation Between Alaska Air and Advance Auto

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

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

Diversification Opportunities for Alaska Air and Advance Auto

0.25

Correlation Coefficient

Alaska Air  Advance Auto

Modest diversification

The 3 months correlation between Alaska and Advance is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group, 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 Alaska Air 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 Alaska Air Group, 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 Alaska Air i.e., Alaska Air and Advance Auto go up and down completely randomly.

Pair Corralation between Alaska Air and Advance Auto

Assuming the 90 days trading horizon Alaska Air is expected to generate 16.32 times less return on investment than Advance Auto. But when comparing it to its historical volatility, Alaska Air Group, is 3.26 times less risky than Advance Auto. It trades about 0.03 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,162  in Advance Auto Parts on April 20, 2025 and sell it today you would earn a total of  954.00  from holding Advance Auto Parts or generate 82.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Alaska Air Group,  vs.  Advance Auto Parts

Alaska Air Group,

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group, are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Alaska Air is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Advance Auto Parts

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 11 (%) 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.

Pair Trading with Alaska Air and Advance Auto

The main advantage of trading using opposite Alaska Air and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air 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 Alaska Air Group, 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.