Correlation Between CarMax and Cango
Can any of the company-specific risk be diversified away by investing in both CarMax and Cango 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 CarMax and Cango into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Cango Inc, you can compare the effects of market volatilities on CarMax and Cango 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 CarMax with a short position of Cango. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Cango.
Diversification Opportunities for CarMax and Cango
Very weak diversification
The 3 months correlation between CarMax and Cango is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Cango Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cango Inc and CarMax 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 CarMax Inc are associated (or correlated) with Cango. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cango Inc has no effect on the direction of CarMax i.e., CarMax and Cango go up and down completely randomly.
Pair Corralation between CarMax and Cango
Considering the 90-day investment horizon CarMax is expected to generate 7.15 times less return on investment than Cango. But when comparing it to its historical volatility, CarMax Inc is 2.78 times less risky than Cango. It trades about 0.05 of its potential returns per unit of risk. Cango Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 105.00 in Cango Inc on November 9, 2024 and sell it today you would earn a total of 379.00 from holding Cango Inc or generate 360.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CarMax Inc vs. Cango Inc
Performance |
| Timeline |
| CarMax Inc |
| Cango Inc |
CarMax and Cango Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and Cango
The main advantage of trading using opposite CarMax and Cango positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Cango 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 Cango will offset losses from the drop in Cango's long position.The idea behind CarMax Inc and Cango Inc 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.| Cango vs. Cars Inc | Cango vs. KAR Auction Services | Cango vs. Rush Enterprises B | Cango vs. Rush Enterprises A |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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