Correlation Between Apple and CarMax

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

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

Diversification Opportunities for Apple and CarMax

0.85

Correlation Coefficient

Apple  CarMax

Very poor diversification

The 3 months correlation between Apple and CarMax is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Apple 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 Apple Inc 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 Apple i.e., Apple and CarMax go up and down completely randomly.

Pair Corralation between Apple and CarMax

Assuming the 90 days trading horizon Apple is expected to generate 15.91 times less return on investment than CarMax. But when comparing it to its historical volatility, Apple Inc is 1.44 times less risky than CarMax. It trades about 0.01 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,686  in CarMax Inc on October 24, 2024 and sell it today you would earn a total of  864.00  from holding CarMax Inc or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Apple Inc  vs.  CarMax Inc

Apple Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Apple is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CarMax Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 9 (%) 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 Apple and CarMax

The main advantage of trading using opposite Apple and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.