Correlation Between Advance Auto and Meta Platforms

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

Diversification Opportunities for Advance Auto and Meta Platforms

-0.02

Correlation Coefficient

Advance Auto  Meta Platforms

Good diversification

The 3 months correlation between Advance and Meta is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Advance Auto i.e., Advance Auto and Meta Platforms go up and down completely randomly.

Pair Corralation between Advance Auto and Meta Platforms

If you would invest  16,949  in Meta Platforms on January 26, 2024 and sell it today you would earn a total of  0.00  from holding Meta Platforms or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	0.27%
Values	Daily Returns

Advance Auto Parts  vs.  Meta Platforms

Advance Auto Parts

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Meta Platforms is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Advance Auto and Meta Platforms

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

The idea behind Advance Auto Parts and Meta Platforms 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.