Correlation Between AutoZone and ODP Corp

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

By analyzing existing cross correlation between AutoZone and ODP Corp, you can compare the effects of market volatilities on AutoZone and ODP Corp 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 ODP Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoZone and ODP Corp.

Diversification Opportunities for AutoZone and ODP Corp

-0.74

Correlation Coefficient

AutoZone  ODP Corp

Pay attention - limited upside

The 3 months correlation between AutoZone and ODP is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and ODP Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ODP Corp 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 ODP Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ODP Corp has no effect on the direction of AutoZone i.e., AutoZone and ODP Corp go up and down completely randomly.

Pair Corralation between AutoZone and ODP Corp

Considering the 90-day investment horizon AutoZone is expected to generate 0.26 times more return on investment than ODP Corp. However, AutoZone is 3.84 times less risky than ODP Corp. It trades about 0.15 of its potential returns per unit of risk. ODP Corp is currently generating about -0.15 per unit of risk. If you would invest  325,347  in AutoZone on December 20, 2024 and sell it today you would earn a total of  33,814  from holding AutoZone or generate 10.39% return on investment over 90 days.

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

AutoZone  vs.  ODP Corp

AutoZone

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ODP Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ODP Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with AutoZone and ODP Corp

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

The idea behind AutoZone and ODP Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.