Correlation Between Advance Auto and Continental

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

Diversification Opportunities for Advance Auto and Continental

0.49

Correlation Coefficient

Advance Auto  Continental

Very weak diversification

The 3 months correlation between Advance and Continental is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental 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 Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Advance Auto i.e., Advance Auto and Continental go up and down completely randomly.

Pair Corralation between Advance Auto and Continental

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 1.32 times more return on investment than Continental. However, Advance Auto is 1.32 times more volatile than Caleres. It trades about -0.06 of its potential returns per unit of risk. Caleres is currently generating about -0.15 per unit of risk. If you would invest  4,580  in Advance Auto Parts on December 30, 2024 and sell it today you would lose (685.00) from holding Advance Auto Parts or give up 14.96% of portfolio value over 90 days.

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

Advance Auto Parts  vs.  Caleres

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. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Continental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caleres 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 quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Advance Auto and Continental

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

The idea behind Advance Auto Parts and Caleres 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.