Correlation Between Advance Auto and Best Buy

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

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

Diversification Opportunities for Advance Auto and Best Buy

0.71

Correlation Coefficient

Advance Auto  Best Buy

Poor diversification

The 3 months correlation between Advance and Best is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Advance Auto 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 Advance Auto Parts are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Advance Auto i.e., Advance Auto and Best Buy go up and down completely randomly.

Pair Corralation between Advance Auto and Best Buy

Assuming the 90 days trading horizon Advance Auto Parts is expected to generate 2.07 times more return on investment than Best Buy. However, Advance Auto is 2.07 times more volatile than Best Buy Co. It trades about -0.09 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.24 per unit of risk. If you would invest  1,712  in Advance Auto Parts on December 24, 2024 and sell it today you would lose (366.00) from holding Advance Auto Parts or give up 21.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.61%
Values	Daily Returns

Advance Auto Parts  vs.  Best Buy Co

Advance Auto Parts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Best Buy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Advance Auto and Best Buy

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

The idea behind Advance Auto Parts and Best Buy Co 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.