Correlation Between Five Below and AutoZone

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

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

Diversification Opportunities for Five Below and AutoZone

-0.41

Correlation Coefficient

Five Below  AutoZone

Very good diversification

The 3 months correlation between Five and AutoZone is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Five Below and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone and Five Below 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 Five Below are associated (or correlated) with AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of Five Below i.e., Five Below and AutoZone go up and down completely randomly.

Pair Corralation between Five Below and AutoZone

Given the investment horizon of 90 days Five Below is expected to generate 2.49 times more return on investment than AutoZone. However, Five Below is 2.49 times more volatile than AutoZone. It trades about 0.11 of its potential returns per unit of risk. AutoZone is currently generating about 0.02 per unit of risk. If you would invest  7,628  in Five Below on September 1, 2024 and sell it today you would earn a total of  1,642  from holding Five Below or generate 21.53% return on investment over 90 days.

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

Five Below  vs.  AutoZone

Five Below

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Below are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Five Below exhibited solid returns over the last few months and may actually be approaching a breakup point.

AutoZone

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Five Below and AutoZone

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

The idea behind Five Below and AutoZone 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.