Correlation Between CarMax and AutoNation
Can any of the company-specific risk be diversified away by investing in both CarMax and AutoNation 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 AutoNation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and AutoNation, you can compare the effects of market volatilities on CarMax and AutoNation 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 AutoNation. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and AutoNation.
Diversification Opportunities for CarMax and AutoNation
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between CarMax and AutoNation is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation 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 AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of CarMax i.e., CarMax and AutoNation go up and down completely randomly.
Pair Corralation between CarMax and AutoNation
Assuming the 90 days horizon CarMax Inc is expected to generate 1.25 times more return on investment than AutoNation. However, CarMax is 1.25 times more volatile than AutoNation. It trades about 0.11 of its potential returns per unit of risk. AutoNation is currently generating about -0.03 per unit of risk. If you would invest 7,750 in CarMax Inc on September 24, 2024 and sell it today you would earn a total of 296.00 from holding CarMax Inc or generate 3.82% 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. AutoNation
Performance |
| Timeline |
| CarMax Inc |
| AutoNation |
CarMax and AutoNation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and AutoNation
The main advantage of trading using opposite CarMax and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, AutoNation 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 AutoNation will offset losses from the drop in AutoNation's long position.| CarMax vs. Copart Inc | CarMax vs. Zhongsheng Group Holdings | CarMax vs. DIeteren Group SA | CarMax vs. Penske Automotive Group |
| AutoNation vs. Copart Inc | AutoNation vs. Zhongsheng Group Holdings | AutoNation vs. CarMax Inc | AutoNation vs. DIeteren Group SA |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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