Correlation Between Liberty International and AAP

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

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

Diversification Opportunities for Liberty International and AAP

0.44

Correlation Coefficient

Liberty International  AAP

Very weak diversification

The 3 months correlation between Liberty and AAP is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Liberty International Holding and AAP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP Inc and Liberty 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 Liberty International Holding are associated (or correlated) with AAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP Inc has no effect on the direction of Liberty International i.e., Liberty International and AAP go up and down completely randomly.

Pair Corralation between Liberty International and AAP

Given the investment horizon of 90 days Liberty International Holding is expected to generate 2.0 times more return on investment than AAP. However, Liberty International is 2.0 times more volatile than AAP Inc. It trades about 0.06 of its potential returns per unit of risk. AAP Inc is currently generating about 0.04 per unit of risk. If you would invest  20.00  in Liberty International Holding on May 6, 2025 and sell it today you would lose (18.39) from holding Liberty International Holding or give up 91.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Liberty International Holding  vs.  AAP Inc

Liberty International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty International Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Liberty International reported solid returns over the last few months and may actually be approaching a breakup point.

AAP Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty International and AAP

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

The idea behind Liberty International Holding and AAP Inc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.