Correlation Between Discount Print and AAP

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

By analyzing existing cross correlation between Discount Print USA and AAP Inc, you can compare the effects of market volatilities on Discount Print and AAP 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 Discount Print with a short position of AAP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discount Print and AAP.

Diversification Opportunities for Discount Print and AAP

0.2

Correlation Coefficient

Discount Print  AAP

Modest diversification

The 3 months correlation between Discount and AAP is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Discount Print USA and AAP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP Inc and Discount Print 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 Discount Print USA are associated (or correlated) with AAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP Inc has no effect on the direction of Discount Print i.e., Discount Print and AAP go up and down completely randomly.

Pair Corralation between Discount Print and AAP

Given the investment horizon of 90 days Discount Print is expected to generate 2.26 times less return on investment than AAP. But when comparing it to its historical volatility, Discount Print USA is 1.31 times less risky than AAP. It trades about 0.04 of its potential returns per unit of risk. AAP Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.05  in AAP Inc on September 12, 2024 and sell it today you would lose (0.03) from holding AAP Inc or give up 60.0% of portfolio value over 90 days.

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

Discount Print USA  vs.  AAP Inc

Discount Print USA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Discount Print USA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Discount Print demonstrated solid returns over the last few months and may actually be approaching a breakup point.

AAP Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discount Print and AAP

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

The idea behind Discount Print USA and AAP Inc 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.