Correlation Between Alibaba Group and CarMax

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

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

Diversification Opportunities for Alibaba Group and CarMax

-0.72

Correlation Coefficient

Alibaba Group  CarMax

Pay attention - limited upside

The 3 months correlation between Alibaba and CarMax is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Alibaba Group 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 Alibaba Group Holding 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 Alibaba Group i.e., Alibaba Group and CarMax go up and down completely randomly.

Pair Corralation between Alibaba Group and CarMax

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the CarMax. In addition to that, Alibaba Group is 1.04 times more volatile than CarMax Inc. It trades about -0.01 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.03 per unit of volatility. If you would invest  6,113  in CarMax Inc on October 4, 2024 and sell it today you would earn a total of  1,769  from holding CarMax Inc or generate 28.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

Alibaba Group Holding  vs.  CarMax Inc

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

CarMax Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CarMax reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and CarMax

The main advantage of trading using opposite Alibaba Group and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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 Alibaba Group Holding 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 Stocks Directory module to find actively traded stocks across global markets.