Correlation Between AutoZone and Tractor Supply

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

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

Diversification Opportunities for AutoZone and Tractor Supply

0.26

Correlation Coefficient

AutoZone  Tractor Supply

Modest diversification

The 3 months correlation between AutoZone and Tractor is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Tractor Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tractor Supply 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 Tractor Supply. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tractor Supply has no effect on the direction of AutoZone i.e., AutoZone and Tractor Supply go up and down completely randomly.

Pair Corralation between AutoZone and Tractor Supply

Considering the 90-day investment horizon AutoZone is expected to generate 7.88 times less return on investment than Tractor Supply. But when comparing it to its historical volatility, AutoZone is 1.19 times less risky than Tractor Supply. It trades about 0.01 of its potential returns per unit of risk. Tractor Supply is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  26,651  in Tractor Supply on August 30, 2024 and sell it today you would earn a total of  1,545  from holding Tractor Supply or generate 5.8% return on investment over 90 days.

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

AutoZone  vs.  Tractor Supply

AutoZone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoZone has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoZone is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Tractor Supply

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tractor Supply are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Tractor Supply may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with AutoZone and Tractor Supply

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

The idea behind AutoZone and Tractor Supply 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.