Correlation Between Birks and Advance Auto

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

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

Diversification Opportunities for Birks and Advance Auto

-0.74

Correlation Coefficient

Birks  Advance Auto

Pay attention - limited upside

The 3 months correlation between Birks and Advance is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Birks 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 Birks 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 Birks 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 Birks i.e., Birks and Advance Auto go up and down completely randomly.

Pair Corralation between Birks and Advance Auto

Considering the 90-day investment horizon Birks Group is expected to under-perform the Advance Auto. In addition to that, Birks is 1.18 times more volatile than Advance Auto Parts. It trades about -0.37 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about -0.25 per unit of volatility. If you would invest  8,516  in Advance Auto Parts on February 1, 2024 and sell it today you would lose (1,218) from holding Advance Auto Parts or give up 14.3% of portfolio value over 90 days.

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

Birks Group  vs.  Advance Auto Parts

Birks Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Birks Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Advance Auto Parts

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Birks and Advance Auto

The main advantage of trading using opposite Birks and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Birks 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 Birks 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.