Correlation Between Marriott International and Advance Auto

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

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

Diversification Opportunities for Marriott International and Advance Auto

-0.43

Correlation Coefficient

Marriott International  Advance Auto

Very good diversification

The 3 months correlation between Marriott and Advance is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Marriott International 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 Marriott International 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 Marriott International 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 Marriott International i.e., Marriott International and Advance Auto go up and down completely randomly.

Pair Corralation between Marriott International and Advance Auto

Assuming the 90 days trading horizon Marriott International is expected to generate 0.47 times more return on investment than Advance Auto. However, Marriott International is 2.12 times less risky than Advance Auto. It trades about 0.15 of its potential returns per unit of risk. Advance Auto Parts is currently generating about -0.08 per unit of risk. If you would invest  30,458  in Marriott International on August 25, 2024 and sell it today you would earn a total of  9,733  from holding Marriott International or generate 31.96% return on investment over 90 days.

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

Marriott International  vs.  Advance Auto Parts

Marriott International

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Marriott International sustained solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Marriott International and Advance Auto

The main advantage of trading using opposite Marriott International and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marriott International 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 Marriott International 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.