Correlation Between CarMax and AZZ Incorporated

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

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

Diversification Opportunities for CarMax and AZZ Incorporated

0.42

Correlation Coefficient

CarMax  AZZ Incorporated

Very weak diversification

The 3 months correlation between CarMax and AZZ is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and AZZ Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AZZ Incorporated 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 AZZ Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AZZ Incorporated has no effect on the direction of CarMax i.e., CarMax and AZZ Incorporated go up and down completely randomly.

Pair Corralation between CarMax and AZZ Incorporated

Considering the 90-day investment horizon CarMax is expected to generate 6.45 times less return on investment than AZZ Incorporated. In addition to that, CarMax is 1.13 times more volatile than AZZ Incorporated. It trades about 0.02 of its total potential returns per unit of risk. AZZ Incorporated is currently generating about 0.13 per unit of volatility. If you would invest  3,932  in AZZ Incorporated on August 31, 2024 and sell it today you would earn a total of  5,382  from holding AZZ Incorporated or generate 136.88% return on investment over 90 days.

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

CarMax Inc  vs.  AZZ Incorporated

CarMax Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, CarMax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AZZ Incorporated

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AZZ Incorporated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, AZZ Incorporated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarMax and AZZ Incorporated

The main advantage of trading using opposite CarMax and AZZ Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, AZZ Incorporated 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 AZZ Incorporated will offset losses from the drop in AZZ Incorporated's long position.

The idea behind CarMax Inc and AZZ Incorporated 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.