Correlation Between Hoteles City and CarMax

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

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

Diversification Opportunities for Hoteles City and CarMax

-0.43

Correlation Coefficient

Hoteles City  CarMax

Very good diversification

The 3 months correlation between Hoteles and CarMax is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hoteles City Express and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Hoteles City 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 Hoteles City Express 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 Hoteles City i.e., Hoteles City and CarMax go up and down completely randomly.

Pair Corralation between Hoteles City and CarMax

Assuming the 90 days trading horizon Hoteles City Express is expected to under-perform the CarMax. In addition to that, Hoteles City is 3.69 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 -0.23 per unit of volatility. If you would invest  173,900  in CarMax Inc on October 10, 2024 and sell it today you would lose (5,300) from holding CarMax Inc or give up 3.05% of portfolio value over 90 days.

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

Hoteles City Express  vs.  CarMax Inc

Hoteles City Express

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hoteles City Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 fairly weak basic indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hoteles City and CarMax

The main advantage of trading using opposite Hoteles City and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hoteles City 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 Hoteles City Express 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..