Correlation Between CarMax and Group 1
Can any of the company-specific risk be diversified away by investing in both CarMax and Group 1 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 Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Group 1 Automotive, you can compare the effects of market volatilities on CarMax and Group 1 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 Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Group 1.
Diversification Opportunities for CarMax and Group 1
Very poor diversification
The 3 months correlation between CarMax and Group is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive 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 Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of CarMax i.e., CarMax and Group 1 go up and down completely randomly.
Pair Corralation between CarMax and Group 1
Considering the 90-day investment horizon CarMax Inc is expected to under-perform the Group 1. In addition to that, CarMax is 1.48 times more volatile than Group 1 Automotive. It trades about -0.2 of its total potential returns per unit of risk. Group 1 Automotive is currently generating about 0.27 per unit of volatility. If you would invest 41,846 in Group 1 Automotive on October 24, 2024 and sell it today you would earn a total of 2,398 from holding Group 1 Automotive or generate 5.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CarMax Inc vs. Group 1 Automotive
Performance |
| Timeline |
| CarMax Inc |
| Group 1 Automotive |
CarMax and Group 1 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and Group 1
The main advantage of trading using opposite CarMax and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.The idea behind CarMax Inc and Group 1 Automotive 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.| 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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