Correlation Between CarMax and Micron Technology
Can any of the company-specific risk be diversified away by investing in both CarMax and Micron Technology 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 CarMax and Micron Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Micron Technology, you can compare the effects of market volatilities on CarMax and Micron Technology 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 CarMax with a short position of Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Micron Technology.
Diversification Opportunities for CarMax and Micron Technology
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CarMax and Micron is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and CarMax 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 CarMax Inc are associated (or correlated) with Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of CarMax i.e., CarMax and Micron Technology go up and down completely randomly.
Pair Corralation between CarMax and Micron Technology
Assuming the 90 days trading horizon CarMax Inc is expected to generate 0.16 times more return on investment than Micron Technology. However, CarMax Inc is 6.37 times less risky than Micron Technology. It trades about -0.1 of its potential returns per unit of risk. Micron Technology is currently generating about -0.09 per unit of risk. If you would invest 171,426 in CarMax Inc on October 5, 2024 and sell it today you would lose (2,826) from holding CarMax Inc or give up 1.65% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
CarMax Inc vs. Micron Technology
Performance |
Timeline |
CarMax Inc |
Micron Technology |
CarMax and Micron Technology Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with CarMax and Micron Technology
The main advantage of trading using opposite CarMax and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Micron Technology 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 Micron Technology will offset losses from the drop in Micron Technology's long position.CarMax vs. FibraHotel | CarMax vs. Verizon Communications | CarMax vs. Cognizant Technology Solutions | CarMax vs. Grupo Sports World |
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Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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