Correlation Between CarMax and Cango

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

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

Diversification Opportunities for CarMax and Cango

0.38

Correlation Coefficient

CarMax  Cango

Weak diversification

The 3 months correlation between CarMax and Cango is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Cango Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cango Inc 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 Cango. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cango Inc has no effect on the direction of CarMax i.e., CarMax and Cango go up and down completely randomly.

Pair Corralation between CarMax and Cango

Considering the 90-day investment horizon CarMax Inc is expected to generate 0.33 times more return on investment than Cango. However, CarMax Inc is 3.02 times less risky than Cango. It trades about -0.05 of its potential returns per unit of risk. Cango Inc is currently generating about -0.02 per unit of risk. If you would invest  8,206  in CarMax Inc on December 28, 2024 and sell it today you would lose (513.00) from holding CarMax Inc or give up 6.25% of portfolio value over 90 days.

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

CarMax Inc  vs.  Cango Inc

CarMax Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarMax Inc has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Cango Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cango Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CarMax and Cango

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

The idea behind CarMax Inc and Cango 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.