Correlation Between TRON and CarMax

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

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

Diversification Opportunities for TRON and CarMax

0.85

Correlation Coefficient

TRON  CarMax

Very poor diversification

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

Pair Corralation between TRON and CarMax

Assuming the 90 days trading horizon TRON is expected to generate 3.22 times more return on investment than CarMax. However, TRON is 3.22 times more volatile than CarMax Inc. It trades about -0.06 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.28 per unit of risk. If you would invest  27.00  in TRON on October 9, 2024 and sell it today you would lose (2.00) from holding TRON or give up 7.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	80.95%
Values	Daily Returns

TRON  vs.  CarMax Inc

TRON

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TRON are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TRON exhibited solid returns over the last few months and may actually be approaching a breakup point.

CarMax Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CarMax unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRON and CarMax

The main advantage of trading using opposite TRON and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRON 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 TRON 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.