Correlation Between CarMax and Caseys General

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

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

Diversification Opportunities for CarMax and Caseys General

0.84

Correlation Coefficient

CarMax  Caseys General

Very poor diversification

The 3 months correlation between CarMax and Caseys is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Caseys General Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caseys General Stores 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 Caseys General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caseys General Stores has no effect on the direction of CarMax i.e., CarMax and Caseys General go up and down completely randomly.

Pair Corralation between CarMax and Caseys General

Assuming the 90 days horizon CarMax Inc is expected to generate 1.37 times more return on investment than Caseys General. However, CarMax is 1.37 times more volatile than Caseys General Stores. It trades about -0.03 of its potential returns per unit of risk. Caseys General Stores is currently generating about -0.12 per unit of risk. If you would invest  7,956  in CarMax Inc on October 5, 2024 and sell it today you would lose (74.00) from holding CarMax Inc or give up 0.93% of portfolio value over 90 days.

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

CarMax Inc  vs.  Caseys General Stores

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.

Caseys General Stores

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Caseys General Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Caseys General unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarMax and Caseys General

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

The idea behind CarMax Inc and Caseys General Stores 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.