Correlation Between Wayfair and Advance Auto

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

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

Diversification Opportunities for Wayfair and Advance Auto

0.22

Correlation Coefficient

Wayfair  Advance Auto

Modest diversification

The 3 months correlation between Wayfair and Advance is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair 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 Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and Advance Auto go up and down completely randomly.

Pair Corralation between Wayfair and Advance Auto

Taking into account the 90-day investment horizon Wayfair is expected to generate 5.37 times less return on investment than Advance Auto. In addition to that, Wayfair is 1.26 times more volatile than Advance Auto Parts. It trades about 0.0 of its total potential returns per unit of risk. Advance Auto Parts is currently generating about 0.01 per unit of volatility. If you would invest  4,384  in Advance Auto Parts on September 27, 2024 and sell it today you would lose (11.00) from holding Advance Auto Parts or give up 0.25% of portfolio value over 90 days.

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

Wayfair  vs.  Advance Auto Parts

Wayfair

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Advance Auto Parts

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Advance Auto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wayfair and Advance Auto

The main advantage of trading using opposite Wayfair and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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 Wayfair 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.