Correlation Between Aarons and CarMax

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

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

Diversification Opportunities for Aarons and CarMax

-0.46

Correlation Coefficient

Aarons  CarMax

Very good diversification

The 3 months correlation between Aarons and CarMax is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding The Aarons and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Aarons 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 The Aarons 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 Aarons i.e., Aarons and CarMax go up and down completely randomly.

Pair Corralation between Aarons and CarMax

Considering the 90-day investment horizon The Aarons is expected to generate 0.94 times more return on investment than CarMax. However, The Aarons is 1.07 times less risky than CarMax. It trades about -0.09 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.37 per unit of risk. If you would invest  755.00  in The Aarons on January 31, 2024 and sell it today you would lose (37.00) from holding The Aarons or give up 4.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

The Aarons  vs.  CarMax Inc

Aarons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Aarons has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

CarMax Inc

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aarons and CarMax

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

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.