Correlation Between Academy Sports and Advance Auto

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

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

Diversification Opportunities for Academy Sports and Advance Auto

-0.4

Correlation Coefficient

Academy Sports  Advance Auto

Very good diversification

The 3 months correlation between Academy and Advance is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Academy Sports Outdoors 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 Academy Sports 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 Academy Sports Outdoors 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 Academy Sports i.e., Academy Sports and Advance Auto go up and down completely randomly.

Pair Corralation between Academy Sports and Advance Auto

Considering the 90-day investment horizon Academy Sports Outdoors is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, Academy Sports Outdoors is 1.43 times less risky than Advance Auto. The stock trades about -0.1 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,883  in Advance Auto Parts on August 7, 2024 and sell it today you would lose (138.00) from holding Advance Auto Parts or give up 3.55% of portfolio value over 90 days.

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

Academy Sports Outdoors  vs.  Advance Auto Parts

Academy Sports Outdoors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Academy Sports Outdoors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Academy Sports may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Advance Auto Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advance Auto Parts 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 basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Academy Sports and Advance Auto

The main advantage of trading using opposite Academy Sports and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Academy Sports 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 Academy Sports Outdoors 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.