Correlation Between CarMax and Penske Automotive

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

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

Diversification Opportunities for CarMax and Penske Automotive

0.62

Correlation Coefficient

CarMax  Penske Automotive

Poor diversification

The 3 months correlation between CarMax and Penske is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive 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 Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of CarMax i.e., CarMax and Penske Automotive go up and down completely randomly.

Pair Corralation between CarMax and Penske Automotive

Considering the 90-day investment horizon CarMax Inc is expected to under-perform the Penske Automotive. But the stock apears to be less risky and, when comparing its historical volatility, CarMax Inc is 1.01 times less risky than Penske Automotive. The stock trades about -0.05 of its potential returns per unit of risk. The Penske Automotive Group is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  15,244  in Penske Automotive Group on December 28, 2024 and sell it today you would lose (799.00) from holding Penske Automotive Group or give up 5.24% of portfolio value over 90 days.

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

CarMax Inc  vs.  Penske Automotive Group

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.

Penske Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penske Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Penske Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CarMax and Penske Automotive

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

The idea behind CarMax Inc and Penske Automotive Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.