Correlation Between CarMax and DIeteren Group

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

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

Diversification Opportunities for CarMax and DIeteren Group

0.68

Correlation Coefficient

CarMax  DIeteren Group

Poor diversification

The 3 months correlation between CarMax and DIeteren is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and DIeteren Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIeteren Group SA 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 DIeteren Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIeteren Group SA has no effect on the direction of CarMax i.e., CarMax and DIeteren Group go up and down completely randomly.

Pair Corralation between CarMax and DIeteren Group

Assuming the 90 days horizon CarMax is expected to generate 1.32 times less return on investment than DIeteren Group. But when comparing it to its historical volatility, CarMax Inc is 1.75 times less risky than DIeteren Group. It trades about 0.24 of its potential returns per unit of risk. DIeteren Group SA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  12,406  in DIeteren Group SA on September 22, 2024 and sell it today you would earn a total of  3,584  from holding DIeteren Group SA or generate 28.89% return on investment over 90 days.

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

CarMax Inc  vs.  DIeteren Group SA

CarMax Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CarMax reported solid returns over the last few months and may actually be approaching a breakup point.

DIeteren Group SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIeteren Group SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, DIeteren Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarMax and DIeteren Group

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

The idea behind CarMax Inc and DIeteren Group SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.