Correlation Between Penske Automotive and CarMax

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

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

Diversification Opportunities for Penske Automotive and CarMax

0.62

Correlation Coefficient

Penske Automotive  CarMax

Poor diversification

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

Pair Corralation between Penske Automotive and CarMax

Considering the 90-day investment horizon Penske Automotive Group is expected to generate 1.01 times more return on investment than CarMax. However, Penske Automotive is 1.01 times more volatile than CarMax Inc. It trades about -0.04 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.05 per unit of risk. 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

Penske Automotive Group  vs.  CarMax Inc

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.

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.

Pair Trading with Penske Automotive and CarMax

The main advantage of trading using opposite Penske Automotive and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penske Automotive 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 Penske Automotive Group 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..