Correlation Between Advance Auto and Trade Desk

Can any of the company-specific risk be diversified away by investing in both Advance Auto and Trade Desk 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 Trade Desk 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 The Trade Desk, you can compare the effects of market volatilities on Advance Auto and Trade Desk 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 Trade Desk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Trade Desk.

Diversification Opportunities for Advance Auto and Trade Desk

0.47

Correlation Coefficient

Advance Auto  Trade Desk

Very weak diversification

The 3 months correlation between Advance and Trade is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and The Trade Desk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Desk 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 Trade Desk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Desk has no effect on the direction of Advance Auto i.e., Advance Auto and Trade Desk go up and down completely randomly.

Pair Corralation between Advance Auto and Trade Desk

Assuming the 90 days trading horizon Advance Auto Parts is expected to under-perform the Trade Desk. But the stock apears to be less risky and, when comparing its historical volatility, Advance Auto Parts is 1.25 times less risky than Trade Desk. The stock trades about -0.04 of its potential returns per unit of risk. The The Trade Desk is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  276.00  in The Trade Desk on October 25, 2024 and sell it today you would earn a total of  428.00  from holding The Trade Desk or generate 155.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.2%
Values	Daily Returns

Advance Auto Parts  vs.  The Trade Desk

Advance Auto Parts

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advance Auto sustained solid returns over the last few months and may actually be approaching a breakup point.

Trade Desk

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Trade Desk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trade Desk may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Advance Auto and Trade Desk

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

The idea behind Advance Auto Parts and The Trade Desk 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.