Correlation Between ACV Auctions and CarMax

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

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

Diversification Opportunities for ACV Auctions and CarMax

0.84

Correlation Coefficient

ACV Auctions  CarMax

Very poor diversification

The 3 months correlation between ACV and CarMax is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ACV Auctions and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and ACV Auctions 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 ACV Auctions 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 ACV Auctions i.e., ACV Auctions and CarMax go up and down completely randomly.

Pair Corralation between ACV Auctions and CarMax

Given the investment horizon of 90 days ACV Auctions is expected to generate 1.44 times more return on investment than CarMax. However, ACV Auctions is 1.44 times more volatile than CarMax Inc. It trades about 0.05 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.06 per unit of risk. If you would invest  1,561  in ACV Auctions on September 14, 2024 and sell it today you would earn a total of  469.00  from holding ACV Auctions or generate 30.04% return on investment over 90 days.

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

ACV Auctions  vs.  CarMax Inc

ACV Auctions

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ACV Auctions are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ACV Auctions is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CarMax Inc

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, CarMax may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ACV Auctions and CarMax

The main advantage of trading using opposite ACV Auctions and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACV Auctions 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 ACV Auctions 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..