Correlation Between Kosmos Energy and CarMax

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

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

Diversification Opportunities for Kosmos Energy and CarMax

-0.62

Correlation Coefficient

Kosmos Energy  CarMax

Excellent diversification

The 3 months correlation between Kosmos and CarMax is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Kosmos Energy and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Kosmos Energy 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 Kosmos Energy 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 Kosmos Energy i.e., Kosmos Energy and CarMax go up and down completely randomly.

Pair Corralation between Kosmos Energy and CarMax

Considering the 90-day investment horizon Kosmos Energy is expected to generate 1.75 times more return on investment than CarMax. However, Kosmos Energy is 1.75 times more volatile than CarMax Inc. It trades about 0.32 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.16 per unit of risk. If you would invest  308.00  in Kosmos Energy on October 23, 2024 and sell it today you would earn a total of  55.50  from holding Kosmos Energy or generate 18.02% return on investment over 90 days.

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

Kosmos Energy  vs.  CarMax Inc

Kosmos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kosmos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Kosmos Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CarMax Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, CarMax may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Kosmos Energy and CarMax

The main advantage of trading using opposite Kosmos Energy and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kosmos Energy 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 Kosmos Energy 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.