Correlation Between Destination and CarMax

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

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

Diversification Opportunities for Destination and CarMax

-0.63

Correlation Coefficient

Destination  CarMax

Excellent diversification

The 3 months correlation between Destination and CarMax is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Destination 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 Destination XL Group 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 Destination i.e., Destination and CarMax go up and down completely randomly.

Pair Corralation between Destination and CarMax

Given the investment horizon of 90 days Destination XL Group is expected to under-perform the CarMax. In addition to that, Destination is 1.66 times more volatile than CarMax Inc. It trades about -0.09 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.1 per unit of volatility. If you would invest  8,160  in CarMax Inc on September 23, 2024 and sell it today you would earn a total of  267.00  from holding CarMax Inc or generate 3.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Destination XL Group  vs.  CarMax Inc

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CarMax Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, CarMax may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Destination and CarMax

The main advantage of trading using opposite Destination and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Destination 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 Destination XL Group 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.