Correlation Between Advance Auto and Build A

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

Diversification Opportunities for Advance Auto and Build A

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Advance and Build is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Build-A-Bear Workshop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Build-A-Bear Workshop 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 Build A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Build-A-Bear Workshop has no effect on the direction of Advance Auto i.e., Advance Auto and Build A go up and down completely randomly.

Pair Corralation between Advance Auto and Build A

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 0.48 times more return on investment than Build A. However, Advance Auto Parts is 2.08 times less risky than Build A. It trades about 0.73 of its potential returns per unit of risk. Build A Bear Workshop is currently generating about 0.29 per unit of risk. If you would invest  6,475  in Advance Auto Parts on December 29, 2023 and sell it today you would earn a total of  2,057  from holding Advance Auto Parts or generate 31.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Build-A-Bear Workshop

 Performance 
       Timeline  
Advance Auto Parts 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.
Build-A-Bear Workshop 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto and Build A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Build A

The main advantage of trading using opposite Advance Auto and Build A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Build A 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 Build A will offset losses from the drop in Build A's long position.
The idea behind Advance Auto Parts and Build A Bear Workshop 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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