Correlation Between CarMax and Zumiez
Can any of the company-specific risk be diversified away by investing in both CarMax and Zumiez 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 Zumiez into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Zumiez Inc, you can compare the effects of market volatilities on CarMax and Zumiez 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 Zumiez. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Zumiez.
Diversification Opportunities for CarMax and Zumiez
Very poor diversification
The 3 months correlation between CarMax and Zumiez is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Zumiez Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zumiez 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 Zumiez. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zumiez Inc has no effect on the direction of CarMax i.e., CarMax and Zumiez go up and down completely randomly.
Pair Corralation between CarMax and Zumiez
Considering the 90-day investment horizon CarMax Inc is expected to generate 0.81 times more return on investment than Zumiez. However, CarMax Inc is 1.23 times less risky than Zumiez. It trades about 0.02 of its potential returns per unit of risk. Zumiez Inc is currently generating about 0.01 per unit of risk. If you would invest 6,959 in CarMax Inc on August 23, 2024 and sell it today you would earn a total of 1,104 from holding CarMax Inc or generate 15.86% 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. Zumiez Inc
Performance |
| Timeline |
| CarMax Inc |
| Zumiez Inc |
CarMax and Zumiez Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and Zumiez
The main advantage of trading using opposite CarMax and Zumiez positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Zumiez 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 Zumiez will offset losses from the drop in Zumiez's long position.The idea behind CarMax Inc and Zumiez 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.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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