Correlation Between Advance Auto and Lowes Companies

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

Diversification Opportunities for Advance Auto and Lowes Companies

-0.09

Correlation Coefficient

Advance Auto  Lowes Companies

Good diversification

The 3 months correlation between Advance and Lowes is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Advance Auto i.e., Advance Auto and Lowes Companies go up and down completely randomly.

Pair Corralation between Advance Auto and Lowes Companies

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 2.12 times more return on investment than Lowes Companies. However, Advance Auto is 2.12 times more volatile than Lowes Companies. It trades about 0.08 of its potential returns per unit of risk. Lowes Companies is currently generating about -0.15 per unit of risk. If you would invest  4,113  in Advance Auto Parts on November 28, 2024 and sell it today you would earn a total of  475.00  from holding Advance Auto Parts or generate 11.55% return on investment over 90 days.

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

Advance Auto Parts  vs.  Lowes Companies

Advance Auto Parts

Risk-Adjusted Performance

Weak

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.

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Advance Auto and Lowes Companies

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

The idea behind Advance Auto Parts and Lowes Companies 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.