Correlation Between Standard and AutoZone

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

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

Diversification Opportunities for Standard and AutoZone

-0.77

Correlation Coefficient

Standard  AutoZone

Pay attention - limited upside

The 3 months correlation between Standard and AutoZone is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone and Standard 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 Standard Motor Products 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 Standard i.e., Standard and AutoZone go up and down completely randomly.

Pair Corralation between Standard and AutoZone

Considering the 90-day investment horizon Standard Motor Products is expected to under-perform the AutoZone. In addition to that, Standard is 1.62 times more volatile than AutoZone. It trades about -0.12 of its total potential returns per unit of risk. AutoZone is currently generating about -0.18 per unit of volatility. If you would invest  307,609  in AutoZone on February 7, 2024 and sell it today you would lose (11,777) from holding AutoZone or give up 3.83% of portfolio value over 90 days.

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

Standard Motor Products  vs.  AutoZone

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

AutoZone

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 4 (%) 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 Standard and AutoZone

The main advantage of trading using opposite Standard and AutoZone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard 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 Standard Motor Products 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.