Correlation Between CarMax and Inchcape Plc
Can any of the company-specific risk be diversified away by investing in both CarMax and Inchcape Plc 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 Inchcape Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Inchcape plc, you can compare the effects of market volatilities on CarMax and Inchcape Plc 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 Inchcape Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Inchcape Plc.
Diversification Opportunities for CarMax and Inchcape Plc
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between CarMax and Inchcape is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Inchcape plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inchcape plc 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 Inchcape Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inchcape plc has no effect on the direction of CarMax i.e., CarMax and Inchcape Plc go up and down completely randomly.
Pair Corralation between CarMax and Inchcape Plc
Considering the 90-day investment horizon CarMax Inc is expected to generate 1.39 times more return on investment than Inchcape Plc. However, CarMax is 1.39 times more volatile than Inchcape plc. It trades about 0.08 of its potential returns per unit of risk. Inchcape plc is currently generating about -0.04 per unit of risk. If you would invest 7,053 in CarMax Inc on September 1, 2024 and sell it today you would earn a total of 1,344 from holding CarMax Inc or generate 19.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CarMax Inc vs. Inchcape plc
Performance |
| Timeline |
| CarMax Inc |
| Inchcape plc |
CarMax and Inchcape Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and Inchcape Plc
The main advantage of trading using opposite CarMax and Inchcape Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Inchcape Plc 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 Inchcape Plc will offset losses from the drop in Inchcape Plc's long position.The idea behind CarMax Inc and Inchcape plc 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.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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