Correlation Between Advance Auto and US GoldMining

Can any of the company-specific risk be diversified away by investing in both Advance Auto and US GoldMining 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 US GoldMining 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 US GoldMining Common, you can compare the effects of market volatilities on Advance Auto and US GoldMining 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 US GoldMining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and US GoldMining.

Diversification Opportunities for Advance Auto and US GoldMining

0.09

Correlation Coefficient

Advance Auto  US GoldMining

Significant diversification

The 3 months correlation between Advance and USGO is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and US GoldMining Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US GoldMining Common 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 US GoldMining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US GoldMining Common has no effect on the direction of Advance Auto i.e., Advance Auto and US GoldMining go up and down completely randomly.

Pair Corralation between Advance Auto and US GoldMining

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the US GoldMining. But the stock apears to be less risky and, when comparing its historical volatility, Advance Auto Parts is 2.1 times less risky than US GoldMining. The stock trades about -0.22 of its potential returns per unit of risk. The US GoldMining Common is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  597.00  in US GoldMining Common on January 29, 2024 and sell it today you would earn a total of  32.00  from holding US GoldMining Common or generate 5.36% return on investment over 90 days.

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

Advance Auto Parts  vs.  US GoldMining Common

Advance Auto Parts

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 6 (%) 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.

US GoldMining Common

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in US GoldMining Common are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, US GoldMining displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advance Auto and US GoldMining

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

The idea behind Advance Auto Parts and US GoldMining Common 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..