Correlation Between Group 1 and CarMax
Can any of the company-specific risk be diversified away by investing in both Group 1 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 Group 1 and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Group 1 Automotive and CarMax Inc, you can compare the effects of market volatilities on Group 1 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 Group 1 with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Group 1 and CarMax.
Diversification Opportunities for Group 1 and CarMax
Very weak diversification
The 3 months correlation between Group and CarMax is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Group 1 Automotive and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Group 1 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 Group 1 Automotive 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 Group 1 i.e., Group 1 and CarMax go up and down completely randomly.
Pair Corralation between Group 1 and CarMax
Considering the 90-day investment horizon Group 1 Automotive is expected to generate 1.27 times more return on investment than CarMax. However, Group 1 is 1.27 times more volatile than CarMax Inc. It trades about 0.12 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.12 per unit of risk. If you would invest 38,304 in Group 1 Automotive on August 31, 2024 and sell it today you would earn a total of 4,472 from holding Group 1 Automotive or generate 11.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Group 1 Automotive vs. CarMax Inc
Performance |
| Timeline |
| Group 1 Automotive |
| CarMax Inc |
Group 1 and CarMax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Group 1 and CarMax
The main advantage of trading using opposite Group 1 and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Group 1 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.| Group 1 vs. Penske Automotive Group | Group 1 vs. Lithia Motors | Group 1 vs. AutoNation | Group 1 vs. Asbury Automotive Group |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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