Correlation Between BJs Wholesale and Advance Auto

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

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

Diversification Opportunities for BJs Wholesale and Advance Auto

0.72

Correlation Coefficient

BJs Wholesale  Advance Auto

Poor diversification

The 3 months correlation between BJs and Advance is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club 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 BJs Wholesale 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 BJs Wholesale Club 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 BJs Wholesale i.e., BJs Wholesale and Advance Auto go up and down completely randomly.

Pair Corralation between BJs Wholesale and Advance Auto

Allowing for the 90-day total investment horizon BJs Wholesale is expected to generate 3.19 times less return on investment than Advance Auto. But when comparing it to its historical volatility, BJs Wholesale Club is 1.5 times less risky than Advance Auto. It trades about 0.05 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,625  in Advance Auto Parts on February 2, 2024 and sell it today you would earn a total of  1,867  from holding Advance Auto Parts or generate 33.19% return on investment over 90 days.

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

BJs Wholesale Club  vs.  Advance Auto Parts

BJs Wholesale Club

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking indicators, BJs Wholesale revealed solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto Parts

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Advance Auto may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with BJs Wholesale and Advance Auto

The main advantage of trading using opposite BJs Wholesale and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Wholesale 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 BJs Wholesale Club 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.