Correlation Between AutoZone and Target

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

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

Diversification Opportunities for AutoZone and Target

0.84

Correlation Coefficient

AutoZone  Target

Very poor diversification

The 3 months correlation between AutoZone and Target is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of AutoZone i.e., AutoZone and Target go up and down completely randomly.

Pair Corralation between AutoZone and Target

Considering the 90-day investment horizon AutoZone is expected to generate 1.03 times more return on investment than Target. However, AutoZone is 1.03 times more volatile than Target. It trades about -0.25 of its potential returns per unit of risk. Target is currently generating about -0.44 per unit of risk. If you would invest  316,860  in AutoZone on January 31, 2024 and sell it today you would lose (16,982) from holding AutoZone or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

AutoZone  vs.  Target

AutoZone

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 7 (%) 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.

Target

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AutoZone and Target

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

The idea behind AutoZone and Target 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.