Correlation Between Leslies and Advance Auto

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

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

Diversification Opportunities for Leslies and Advance Auto

-0.42

Correlation Coefficient

Leslies  Advance Auto

Very good diversification

The 3 months correlation between Leslies and Advance is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Leslies and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Leslies 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 Leslies are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Leslies i.e., Leslies and Advance Auto go up and down completely randomly.

Pair Corralation between Leslies and Advance Auto

Given the investment horizon of 90 days Leslies is expected to under-perform the Advance Auto. In addition to that, Leslies is 1.97 times more volatile than Advance Auto Parts. It trades about -0.17 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.08 per unit of volatility. If you would invest  4,113  in Advance Auto Parts on November 28, 2024 and sell it today you would earn a total of  475.00  from holding Advance Auto Parts or generate 11.55% return on investment over 90 days.

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

Leslies  vs.  Advance Auto Parts

Leslies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leslies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Advance Auto Parts

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leslies and Advance Auto

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

The idea behind Leslies and Advance Auto Parts 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.