Correlation Between Carvana and CarMax
Can any of the company-specific risk be diversified away by investing in both Carvana and CarMax 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 Carvana and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carvana Co and CarMax Inc, you can compare the effects of market volatilities on Carvana and CarMax 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 Carvana with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carvana and CarMax.
Diversification Opportunities for Carvana and CarMax
Very good diversification
The 3 months correlation between Carvana and CarMax is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Carvana Co and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Carvana 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 Carvana Co are associated (or correlated) with CarMax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarMax Inc has no effect on the direction of Carvana i.e., Carvana and CarMax go up and down completely randomly.
Pair Corralation between Carvana and CarMax
Given the investment horizon of 90 days Carvana Co is expected to generate 2.41 times more return on investment than CarMax. However, Carvana is 2.41 times more volatile than CarMax Inc. It trades about 0.26 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.33 per unit of risk. If you would invest 20,502 in Carvana Co on August 28, 2024 and sell it today you would earn a total of 5,578 from holding Carvana Co or generate 27.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carvana Co vs. CarMax Inc
Performance |
| Timeline |
| Carvana |
| CarMax Inc |
Carvana and CarMax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carvana and CarMax
The main advantage of trading using opposite Carvana and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carvana position performs unexpectedly, CarMax 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 CarMax will offset losses from the drop in CarMax's long position.| Carvana vs. CarMax Inc | Carvana vs. U Power Limited | Carvana vs. SunCar Technology Group | Carvana vs. Jiuzi Holdings |
| CarMax vs. Kingsway Financial Services | CarMax vs. KAR Auction Services | CarMax vs. Cango Inc | CarMax vs. Vroom Inc |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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