Correlation Between Amazon and CarMax

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and CarMax Inc, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and CarMax.

Diversification Opportunities for Amazon and CarMax

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Amazon and CarMax is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and CarMax go up and down completely randomly.

Pair Corralation between Amazon and CarMax

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.84 times more return on investment than CarMax. However, Amazon Inc is 1.19 times less risky than CarMax. It trades about 0.19 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.16 per unit of risk. If you would invest  370,525  in Amazon Inc on September 27, 2024 and sell it today you would earn a total of  90,275  from holding Amazon Inc or generate 24.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.39%
ValuesDaily Returns

Amazon Inc  vs.  CarMax Inc

 Performance 
       Timeline  
Amazon Inc 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.
CarMax Inc 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.

Amazon and CarMax Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and CarMax

The main advantage of trading using opposite Amazon and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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.
Check out your portfolio center.
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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