Correlation Between CarMax and LIFENET INSURANCE

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

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

Diversification Opportunities for CarMax and LIFENET INSURANCE

0.41

Correlation Coefficient

CarMax  LIFENET INSURANCE

Very weak diversification

The 3 months correlation between CarMax and LIFENET is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and LIFENET INSURANCE CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIFENET INSURANCE and CarMax 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 CarMax Inc are associated (or correlated) with LIFENET INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIFENET INSURANCE has no effect on the direction of CarMax i.e., CarMax and LIFENET INSURANCE go up and down completely randomly.

Pair Corralation between CarMax and LIFENET INSURANCE

Assuming the 90 days horizon CarMax Inc is expected to generate 0.8 times more return on investment than LIFENET INSURANCE. However, CarMax Inc is 1.25 times less risky than LIFENET INSURANCE. It trades about 0.17 of its potential returns per unit of risk. LIFENET INSURANCE CO is currently generating about 0.07 per unit of risk. If you would invest  6,610  in CarMax Inc on October 5, 2024 and sell it today you would earn a total of  1,272  from holding CarMax Inc or generate 19.24% return on investment over 90 days.

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

CarMax Inc  vs.  LIFENET INSURANCE CO

CarMax Inc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days CarMax Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, CarMax reported solid returns over the last few months and may actually be approaching a breakup point.

LIFENET INSURANCE

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days LIFENET INSURANCE CO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, LIFENET INSURANCE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CarMax and LIFENET INSURANCE

The main advantage of trading using opposite CarMax and LIFENET INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, LIFENET INSURANCE 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 LIFENET INSURANCE will offset losses from the drop in LIFENET INSURANCE's long position.

The idea behind CarMax Inc and LIFENET INSURANCE CO 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.