Correlation Between Cango and CarMax

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

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

Diversification Opportunities for Cango and CarMax

0.27

Correlation Coefficient

Cango  CarMax

Modest diversification

The 3 months correlation between Cango and CarMax is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cango Inc and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Cango 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 Cango 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 Cango i.e., Cango and CarMax go up and down completely randomly.

Pair Corralation between Cango and CarMax

Given the investment horizon of 90 days Cango Inc is expected to generate 3.25 times more return on investment than CarMax. However, Cango is 3.25 times more volatile than CarMax Inc. It trades about 0.26 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.02 per unit of risk. If you would invest  168.00  in Cango Inc on September 1, 2024 and sell it today you would earn a total of  246.00  from holding Cango Inc or generate 146.43% return on investment over 90 days.

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

Cango Inc  vs.  CarMax Inc

Cango Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cango Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cango reported solid returns over the last few months and may actually be approaching a breakup point.

CarMax Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, CarMax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cango and CarMax

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

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.