Correlation Between Lowes Companies and CarMax

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

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

Diversification Opportunities for Lowes Companies and CarMax

0.76

Correlation Coefficient

Lowes Companies  CarMax

Poor diversification

The 3 months correlation between Lowes and CarMax is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and CarMax go up and down completely randomly.

Pair Corralation between Lowes Companies and CarMax

Considering the 90-day investment horizon Lowes Companies is expected to generate 0.74 times more return on investment than CarMax. However, Lowes Companies is 1.35 times less risky than CarMax. It trades about -0.07 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.06 per unit of risk. If you would invest  24,726  in Lowes Companies on December 27, 2024 and sell it today you would lose (1,509) from holding Lowes Companies or give up 6.1% of portfolio value over 90 days.

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

Lowes Companies  vs.  CarMax Inc

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lowes Companies is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 latest unfluctuating performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lowes Companies and CarMax

The main advantage of trading using opposite Lowes Companies and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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 Lowes Companies 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..