Correlation Between AutoZone and WD 40

Can any of the company-specific risk be diversified away by investing in both AutoZone and WD 40 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 AutoZone and WD 40 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AutoZone and WD 40 CO, you can compare the effects of market volatilities on AutoZone and WD 40 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 AutoZone with a short position of WD 40. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and WD 40.

Diversification Opportunities for AutoZone and WD 40

0.54

Correlation Coefficient

AutoZone  WD 40

Very weak diversification

The 3 months correlation between AutoZone and WD1 is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and WD 40 CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WD 40 CO and AutoZone 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 AutoZone are associated (or correlated) with WD 40. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WD 40 CO has no effect on the direction of AutoZone i.e., AutoZone and WD 40 go up and down completely randomly.

Pair Corralation between AutoZone and WD 40

Assuming the 90 days horizon AutoZone is expected to generate 1.37 times less return on investment than WD 40. But when comparing it to its historical volatility, AutoZone is 1.49 times less risky than WD 40. It trades about 0.05 of its potential returns per unit of risk. WD 40 CO is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,050  in WD 40 CO on October 5, 2024 and sell it today you would earn a total of  7,150  from holding WD 40 CO or generate 44.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

AutoZone  vs.  WD 40 CO

AutoZone

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days AutoZone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, AutoZone reported solid returns over the last few months and may actually be approaching a breakup point.

WD 40 CO

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WD 40 CO are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WD 40 is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AutoZone and WD 40

The main advantage of trading using opposite AutoZone and WD 40 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone position performs unexpectedly, WD 40 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 WD 40 will offset losses from the drop in WD 40's long position.

The idea behind AutoZone and WD 40 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.