Correlation Between AutoZone and RH

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

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

Diversification Opportunities for AutoZone and RH

0.59

Correlation Coefficient

AutoZone  RH

Very weak diversification

The 3 months correlation between AutoZone and RH is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH and AutoZone 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 AutoZone are associated (or correlated) with RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of AutoZone i.e., AutoZone and RH go up and down completely randomly.

Pair Corralation between AutoZone and RH

Considering the 90-day investment horizon AutoZone is expected to generate 0.27 times more return on investment than RH. However, AutoZone is 3.75 times less risky than RH. It trades about -0.36 of its potential returns per unit of risk. RH is currently generating about -0.37 per unit of risk. If you would invest  316,860  in AutoZone on January 30, 2024 and sell it today you would lose (22,262) from holding AutoZone or give up 7.03% of portfolio value over 90 days.

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

AutoZone  vs.  RH

AutoZone

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 3 (%) 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.

RH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, RH is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with AutoZone and RH

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

The idea behind AutoZone and RH 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.