Correlation Between Sony and Advance Auto

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

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

Diversification Opportunities for Sony and Advance Auto

0.59

Correlation Coefficient

Sony  Advance Auto

Very weak diversification

The 3 months correlation between Sony and Advance is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group 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 Sony 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 Sony Group 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 Sony i.e., Sony and Advance Auto go up and down completely randomly.

Pair Corralation between Sony and Advance Auto

Assuming the 90 days trading horizon Sony is expected to generate 2.48 times less return on investment than Advance Auto. But when comparing it to its historical volatility, Sony Group is 1.85 times less risky than Advance Auto. It trades about 0.18 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,366  in Advance Auto Parts on October 9, 2024 and sell it today you would earn a total of  451.00  from holding Advance Auto Parts or generate 33.02% return on investment over 90 days.

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

Sony Group  vs.  Advance Auto Parts

Sony Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sony sustained solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto Parts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advance Auto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony and Advance Auto

The main advantage of trading using opposite Sony and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sony 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 Sony Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.