Correlation Between Winmark and Advance Auto

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Can any of the company-specific risk be diversified away by investing in both Winmark 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 Winmark and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Winmark and Advance Auto Parts, you can compare the effects of market volatilities on Winmark 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 Winmark with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Winmark and Advance Auto.

Diversification Opportunities for Winmark and Advance Auto

-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Winmark and Advance is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Winmark 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 Winmark 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 Winmark 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 Winmark i.e., Winmark and Advance Auto go up and down completely randomly.

Pair Corralation between Winmark and Advance Auto

Given the investment horizon of 90 days Winmark is expected to generate 0.81 times more return on investment than Advance Auto. However, Winmark is 1.23 times less risky than Advance Auto. It trades about -0.02 of its potential returns per unit of risk. Advance Auto Parts is currently generating about -0.22 per unit of risk. If you would invest  36,424  in Winmark on January 29, 2024 and sell it today you would lose (424.00) from holding Winmark or give up 1.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Winmark  vs.  Advance Auto Parts

 Performance 
       Timeline  
Winmark 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Winmark has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Winmark is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Advance Auto Parts 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Winmark and Advance Auto Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Winmark and Advance Auto

The main advantage of trading using opposite Winmark and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Winmark 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 Winmark 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.
Check out your portfolio center.
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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