AutoZone (AZO): Return Generation and Risk Profile

Company	1M	3M	6M	1Y	2Y	3Y	5Y
AZO	-10.4% α -6.7% s.α -5.1%	-0.8% α 2.4% s.α 6.6%	-21.6% α -20.6% s.α -14.1%	-11.8% α -29.8% s.α -24.4%	6.7% α -19.3% s.α -15.3%	36.9% α -24.4% s.α -14.4%	139.6% α 72.8% s.α 102.8%
S&P 500	-3.7%	-3.2%	-1.0%	18.0%	26.1%	61.2%	66.7%
XLY	-5.4%	-7.4%	-7.5%	12.7%	22.1%	51.3%	36.8%

AZO

AutoZone has experienced recent underperformance, with returns of -10.43% over 1 month and -21.59% over 6 months, leading to negative alpha against both the S&P 500 and the Consumer Cyclical sector. However, the company has been a robust long-term performer, delivering a 139.55% absolute return over five years and generating substantial positive alpha of 72.81% against the S&P 500 and 102.77% against XLY, indicating a strong historical ability to compound capital despite short-term fluctuations.

Company	Ann. Vol	S&P 500 Vol	Downside Dev	Max Drawdown	60d Vol	252d Vol
AZO	25.52%	17.82%	20.55%	-42.14% 2019-12-10 → 2020-03-23	29.89%	25.39%

AZO

AutoZone, Inc. (AZO) demonstrates a higher inherent volatility profile compared to the S&P 500 benchmark. Its annualized volatility stands at 25.52%, a 43.2% premium over the S&P 500's 17.82%, signifying a more dynamic and potentially less stable price trajectory. Downside risk is substantial, evidenced by a downside deviation of 20.55%. The most significant capital impairment event observed was a maximum drawdown of -42.14%, occurring between December 10, 2019, and March 23, 2020, largely coinciding with the initial market impact of the COVID-19 pandemic. The subsequent recovery to peak levels by September 2, 2020, demonstrates a relatively robust rebound capability within approximately nine months. From a temporal perspective, the company's current 60-day annualized volatility of 29.89% is notably above its 252-day volatility of 25.39% and its historical annualized average of 25.52%, suggesting an acceleration in price dispersion in the near term. While the 252-day volatility remains consistent with its long-term average, the recent surge in short-term volatility warrants close monitoring for investors assessing the immediate risk landscape over the next 6-18 months.

Company	Trailing Beta	Upside Beta	Downside Beta	R²	Correlation	Systematic	Idiosyncratic	XLY Beta	Sector Corr	Sector R²
AZO	0.64	0.645	0.768	0.2	0.447	20.0%	80.0%	0.511	0.43	0.185

AZO

AutoZone, Inc. (AZO) exhibits a trailing beta of 0.64 against the S&P 500, positioning it firmly as a defensive asset within a diversified portfolio. This sub-unity beta indicates that the company's stock generally moves less than the overall market. A more granular examination reveals an asymmetric beta profile: an upside beta of 0.645 compared to a downside beta of 0.768. This asymmetry implies that while the company is defensive overall, it participates disproportionately more in market declines (capturing 76.8% of market downside) than in market advances (capturing 64.5% of market upside). This characteristic, where downside capture exceeds upside capture, is a notable consideration for risk-adjusted returns during periods of market volatility, even within a defensive framework. The company's R-squared value of 0.2 (20%) and a correlation of 0.447 with the S&P 500 underscore that only a modest portion of its price variance is explained by general market movements. This signifies a high degree of idiosyncratic risk, with 80.0% of its total risk being company-specific rather than systematic. When comparing its market beta of 0.64 to its sector beta of 0.511 against the Consumer Cyclical (XLY) sector, it is evident that while the company is less sensitive to its direct industry group, its sensitivity to the broader market is somewhat higher than its pure sector exposure. This suggests that a portion of AZO's systematic risk is influenced by broader economic factors beyond its immediate sector dynamics, or that the Consumer Cyclical sector itself may exhibit lower correlation to the broader market than AZO individually does.

Company	Sharpe	Sortino	Calmar	Info Ratio	Treynor
AZO	0.581	0.722	0.438	0.271	23.175

AZO

AutoZone, Inc. (AZO) exhibits a respectable, albeit not exceptional, risk-adjusted performance based on the provided metrics. The Sharpe Ratio of 0.581 indicates that the company has generated returns above the 3.64% risk-free rate, providing positive compensation for the total risk assumed. However, this value falls below the commonly accepted 'good' threshold of 1.0, suggesting a moderate level of risk-adjusted efficiency. A notable strength is observed in its downside risk characteristics, where the Sortino Ratio of 0.722 significantly exceeds the Sharpe Ratio. This differential implies that AZO's returns are less volatile on the downside, suggesting a more favorable distribution of negative returns and potentially greater resilience during periods of market stress or adverse company-specific events. The Treynor Ratio of 23.175 further underscores the company's ability to deliver strong excess returns per unit of systematic risk. The Calmar Ratio of 0.438 provides insight into the company's return generation relative to its maximum drawdown. This metric suggests that AZO has historically generated approximately 43.8% of its peak-to-trough decline in annual returns, reflecting its capacity for recovery following significant drawdowns. The Information Ratio of 0.271, while positive, indicates that the company has generated some excess return relative to a hypothetical benchmark, but it does not meet the 0.5 threshold typically associated with consistent and significant alpha generation through active management. This implies that while AZO's performance is positive, it may not consistently outperform its benchmark by a wide margin after accounting for tracking error.

Company	Bull-LowVol	Bull-HighVol	Bear-LowVol	Bear-HighVol	Up Capture	Down Capture	Ratio
AZO	1.47% 60m	2.5% 36m	0.02% 5m	0.54% 32m	98.3%	53.9%	1.82

AZO

AutoZone, Inc. (AZO) demonstrates exceptional strength across all market regimes. In Bull-LowVol periods, the company generated an average monthly return of 1.47% over 60 months, indicating solid participation in calm uptrends. This performance is notably enhanced in Bull-HighVol regimes, where AZO achieved an even stronger average monthly return of 2.5% over 36 months, suggesting it can thrive even amidst market uncertainty during an uptrend. Critically, AZO functions as a highly defensive asset during market downturns. In Bear-LowVol periods, the average monthly return was a marginally positive 0.02% over 5 months, effectively preserving capital. During the more challenging Bear-HighVol regimes, the company still managed to deliver a positive average monthly return of 0.54% over 32 months, a remarkable feat when the broader market is typically experiencing significant declines. AZO's capture ratios underscore its favorable asymmetric risk-reward profile. An Upside Capture of 98.3% indicates that the stock captures nearly all of the market's gains during upward movements. Concurrently, a Downside Capture of 53.9% signifies that it only participates in approximately half of the market's losses during downturns. This asymmetry is further quantified by an impressive Capture Ratio (Up/Down) of 1.82, implying that AZO captures 182% more upside than downside, relative to the market. The current market regime is identified as Bear-HighVol. Based on its historical performance, AZO's average monthly return of 0.54% in this regime suggests continued positive performance, offering a compelling defensive allocation during periods of high market stress and decline.

• **Asymmetric Capture Profile:** The company exhibits a highly attractive capture profile, with an upside capture of 98.3% and a downside capture of 53.9%. This signifies that AZO's equity tends to participate almost fully in market upturns while exhibiting strong protection during market downturns, capturing only 53.9% of market declines.
• **Low Systematic Risk (Beta):** With a trailing beta of 0.64, AZO demonstrates significantly lower sensitivity to overall market movements compared to the S&P 500. This characteristic positions the stock as a potential portfolio diversifier and a defensive allocation during periods of heightened market uncertainty.
• **Favorable Downside Risk-Adjusted Returns (Sortino Ratio):** The Sortino ratio of 0.722, which focuses on downside volatility, is moderately higher than the Sharpe ratio of 0.581. This suggests that the stock's risk-adjusted returns are more favorable when considering only harmful volatility, aligning with its strong downside capture characteristics.
• **Low Sector Beta:** A sector beta of 0.511 indicates that the company's performance is less correlated with its Consumer Cyclical sector (XLY) movements, potentially offering internal diversification benefits within the sector allocation.

Company	1Y Return	1Y Alpha	XLY Alpha	Sector Beta	Vol	Max DD	Beta	Sharpe	Sortino	Flags
AZO	-11.8%	-29.8%	-24.4%	0.511	25.5%	-42.1%	0.64	0.581	0.722	2

AZO offers strong downside protection and low market beta, but its recent deep drawdown and significant underperformance relative to both the market and its sector classify its overall risk-return profile as elevated.

Strength: Exceptional downside capture of 53.9%, indicating strong capital preservation during market downturns.

Concern: Significant 1-year underperformance, with alpha of -29.81% vs S&P 500 and -24.44% vs XLY, coupled with a deep maximum drawdown of -42.14%.

1. **Defensive Characteristics:** AZO's low beta of 0.64 and superior downside capture of 53.9% position it as a fundamentally defensive asset, offering relative protection during market corrections.
2. **Recent Performance Disconnect:** Despite its protective attributes, the company has experienced significant underperformance over the past year, with a -11.77% return and substantial negative alpha against both the S&P 500 and its sector. This requires investigation into the drivers of this recent trend.
3. **Capital Preservation Concerns:** A maximum drawdown of -42.14% highlights a material historical risk of significant capital loss, which must be weighed against its low beta and strong downside capture.
4. **Modest Risk-Adjusted Returns:** The Sharpe ratio of 0.581 indicates that, despite its defensive characteristics, the company has generated only modest excess returns per unit of total risk over the observed period.
5. **Elevated Idiosyncratic Volatility:** An annualized volatility of 25.52% suggests that while systematic risk (beta) is low, the stock experiences considerable price fluctuations, likely driven by company-specific or sector-specific factors.