Correlation Between Build A and OReilly Automotive

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

By analyzing existing cross correlation between Build A Bear Workshop and OReilly Automotive, you can compare the effects of market volatilities on Build A and OReilly Automotive 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 Build A with a short position of OReilly Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Build A and OReilly Automotive.

Diversification Opportunities for Build A and OReilly Automotive

0.66

Correlation Coefficient

Build A  OReilly Automotive

Poor diversification

The 3 months correlation between Build and OReilly is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Build A Bear Workshop and OReilly Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OReilly Automotive and Build A 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 Build A Bear Workshop are associated (or correlated) with OReilly Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OReilly Automotive has no effect on the direction of Build A i.e., Build A and OReilly Automotive go up and down completely randomly.

Pair Corralation between Build A and OReilly Automotive

Considering the 90-day investment horizon Build A Bear Workshop is expected to generate 1.23 times more return on investment than OReilly Automotive. However, Build A is 1.23 times more volatile than OReilly Automotive. It trades about 0.06 of its potential returns per unit of risk. OReilly Automotive is currently generating about -0.45 per unit of risk. If you would invest  2,913  in Build A Bear Workshop on February 2, 2024 and sell it today you would earn a total of  53.00  from holding Build A Bear Workshop or generate 1.82% return on investment over 90 days.

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

Build A Bear Workshop  vs.  OReilly Automotive

Build A Bear

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

OReilly Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OReilly Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, OReilly Automotive is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Build A and OReilly Automotive

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

The idea behind Build A Bear Workshop and OReilly Automotive 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 Global Correlations module to find global opportunities by holding instruments from different markets.