Correlation Between Advance Auto and Interface

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Can any of the company-specific risk be diversified away by investing in both Advance Auto and Interface 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 Advance Auto and Interface into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advance Auto Parts and Interface, you can compare the effects of market volatilities on Advance Auto and Interface 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 Advance Auto with a short position of Interface. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Interface.

Diversification Opportunities for Advance Auto and Interface

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Advance and Interface is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Interface in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interface and Advance Auto 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 Advance Auto Parts are associated (or correlated) with Interface. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interface has no effect on the direction of Advance Auto i.e., Advance Auto and Interface go up and down completely randomly.

Pair Corralation between Advance Auto and Interface

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 4.37 times more return on investment than Interface. However, Advance Auto is 4.37 times more volatile than Interface. It trades about 0.16 of its potential returns per unit of risk. Interface is currently generating about 0.13 per unit of risk. If you would invest  3,250  in Advance Auto Parts on April 21, 2025 and sell it today you would earn a total of  2,863  from holding Advance Auto Parts or generate 88.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Interface

 Performance 
       Timeline  
Advance Auto Parts 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 12 (%) 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.
Interface 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Interface are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Interface exhibited solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto and Interface Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Interface

The main advantage of trading using opposite Advance Auto and Interface positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Interface 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 Interface will offset losses from the drop in Interface's long position.
The idea behind Advance Auto Parts and Interface 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.
Check out your portfolio center.
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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