Correlation Between London Security and CarMax

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

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

Diversification Opportunities for London Security and CarMax

-0.85

Correlation Coefficient

London Security  CarMax

Pay attention - limited upside

The 3 months correlation between London and CarMax is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and London Security 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 London Security Plc 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 London Security i.e., London Security and CarMax go up and down completely randomly.

Pair Corralation between London Security and CarMax

Assuming the 90 days trading horizon London Security is expected to generate 1.48 times less return on investment than CarMax. But when comparing it to its historical volatility, London Security Plc is 1.5 times less risky than CarMax. It trades about 0.06 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,251  in CarMax Inc on September 24, 2024 and sell it today you would earn a total of  1,077  from holding CarMax Inc or generate 14.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.22%
Values	Daily Returns

London Security Plc  vs.  CarMax Inc

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

CarMax Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CarMax may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with London Security and CarMax

The main advantage of trading using opposite London Security and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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 London Security Plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.