Correlation Between Etsy and Advance Auto

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

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

Diversification Opportunities for Etsy and Advance Auto

-0.72

Correlation Coefficient

Etsy  Advance Auto

Pay attention - limited upside

The 3 months correlation between Etsy and Advance is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc 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 Etsy 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 Etsy Inc 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 Etsy i.e., Etsy and Advance Auto go up and down completely randomly.

Pair Corralation between Etsy and Advance Auto

Given the investment horizon of 90 days Etsy Inc is expected to generate 0.6 times more return on investment than Advance Auto. However, Etsy Inc is 1.66 times less risky than Advance Auto. It trades about 0.08 of its potential returns per unit of risk. Advance Auto Parts is currently generating about -0.21 per unit of risk. If you would invest  6,590  in Etsy Inc on January 30, 2024 and sell it today you would earn a total of  153.00  from holding Etsy Inc or generate 2.32% return on investment over 90 days.

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

Etsy Inc  vs.  Advance Auto Parts

Etsy Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 uncertain basic indicators, Advance Auto reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Etsy and Advance Auto

The main advantage of trading using opposite Etsy and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy 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 Etsy Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.