Correlation Between Summit Materials and CarMax

Can any of the company-specific risk be diversified away by investing in both Summit Materials 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 Summit Materials and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Summit Materials Cl and CarMax Inc, you can compare the effects of market volatilities on Summit Materials 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 Summit Materials with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and CarMax.

Diversification Opportunities for Summit Materials and CarMax

0.57

Correlation Coefficient

Summit Materials  CarMax

Very weak diversification

The 3 months correlation between Summit and CarMax is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials Cl and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Summit Materials 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 Summit Materials Cl 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 Summit Materials i.e., Summit Materials and CarMax go up and down completely randomly.

Pair Corralation between Summit Materials and CarMax

Assuming the 90 days trading horizon Summit Materials Cl is expected to generate 0.89 times more return on investment than CarMax. However, Summit Materials Cl is 1.12 times less risky than CarMax. It trades about 0.06 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.03 per unit of risk. If you would invest  3,188  in Summit Materials Cl on October 12, 2024 and sell it today you would earn a total of  2,021  from holding Summit Materials Cl or generate 63.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.16%
Values	Daily Returns

Summit Materials Cl  vs.  CarMax Inc

Summit Materials

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials Cl are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

CarMax Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CarMax unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and CarMax

The main advantage of trading using opposite Summit Materials and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials Cl 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.