Correlation Between Target and AutoZone

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

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

Diversification Opportunities for Target and AutoZone

0.83

Correlation Coefficient

Target  AutoZone

Very poor diversification

The 3 months correlation between Target and AutoZone is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Target and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone and Target 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 Target are associated (or correlated) with AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of Target i.e., Target and AutoZone go up and down completely randomly.

Pair Corralation between Target and AutoZone

Considering the 90-day investment horizon Target is expected to under-perform the AutoZone. In addition to that, Target is 1.19 times more volatile than AutoZone. It trades about -0.34 of its total potential returns per unit of risk. AutoZone is currently generating about -0.19 per unit of volatility. If you would invest  308,504  in AutoZone on February 4, 2024 and sell it today you would lose (13,284) from holding AutoZone or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Target  vs.  AutoZone

Target

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target may actually be approaching a critical reversion point that can send shares even higher in June 2024.

AutoZone

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, AutoZone is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Target and AutoZone

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

The idea behind Target and AutoZone 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.