Correlation Between CarMax and KAR Auction
Can any of the company-specific risk be diversified away by investing in both CarMax and KAR Auction 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 KAR Auction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and KAR Auction Services, you can compare the effects of market volatilities on CarMax and KAR Auction 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 KAR Auction. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and KAR Auction.
Diversification Opportunities for CarMax and KAR Auction
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CarMax and KAR is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and KAR Auction Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAR Auction Services 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 KAR Auction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAR Auction Services has no effect on the direction of CarMax i.e., CarMax and KAR Auction go up and down completely randomly.
Pair Corralation between CarMax and KAR Auction
Considering the 90-day investment horizon CarMax is expected to generate 2.2 times less return on investment than KAR Auction. In addition to that, CarMax is 1.27 times more volatile than KAR Auction Services. It trades about 0.02 of its total potential returns per unit of risk. KAR Auction Services is currently generating about 0.05 per unit of volatility. If you would invest 1,555 in KAR Auction Services on August 31, 2024 and sell it today you would earn a total of 465.00 from holding KAR Auction Services or generate 29.9% 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. KAR Auction Services
Performance |
| Timeline |
| CarMax Inc |
| KAR Auction Services |
CarMax and KAR Auction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and KAR Auction
The main advantage of trading using opposite CarMax and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, KAR Auction 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 KAR Auction will offset losses from the drop in KAR Auction's long position.The idea behind CarMax Inc and KAR Auction Services 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.| KAR Auction vs. CarGurus | KAR Auction vs. Kingsway Financial Services | KAR Auction vs. Driven Brands Holdings | KAR Auction vs. Group 1 Automotive |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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