Correlation Between Spring Valley and CarMax
Can any of the company-specific risk be diversified away by investing in both Spring Valley and CarMax 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 Spring Valley and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spring Valley Acquisition and CarMax Inc, you can compare the effects of market volatilities on Spring Valley and CarMax 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 Spring Valley with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spring Valley and CarMax.
Diversification Opportunities for Spring Valley and CarMax
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Spring and CarMax is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Spring Valley Acquisition and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Spring Valley 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 Spring Valley Acquisition are associated (or correlated) with CarMax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarMax Inc has no effect on the direction of Spring Valley i.e., Spring Valley and CarMax go up and down completely randomly.
Pair Corralation between Spring Valley and CarMax
Given the investment horizon of 90 days Spring Valley is expected to generate 4.89 times less return on investment than CarMax. But when comparing it to its historical volatility, Spring Valley Acquisition is 10.3 times less risky than CarMax. It trades about 0.09 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 6,016 in CarMax Inc on September 13, 2024 and sell it today you would earn a total of 2,662 from holding CarMax Inc or generate 44.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spring Valley Acquisition vs. CarMax Inc
Performance |
| Timeline |
| Spring Valley Acquisition |
| CarMax Inc |
Spring Valley and CarMax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spring Valley and CarMax
The main advantage of trading using opposite Spring Valley and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spring Valley position performs unexpectedly, CarMax 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 CarMax will offset losses from the drop in CarMax's long position.The idea behind Spring Valley Acquisition and CarMax 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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