Correlation Between Ford and CarMax

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

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

Diversification Opportunities for Ford and CarMax

0.45

Correlation Coefficient

Ford  CarMax

Very weak diversification

The 3 months correlation between Ford and CarMax is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Ford 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 Ford Motor 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 Ford i.e., Ford and CarMax go up and down completely randomly.

Pair Corralation between Ford and CarMax

Taking into account the 90-day investment horizon Ford is expected to generate 1.77 times less return on investment than CarMax. In addition to that, Ford is 1.03 times more volatile than CarMax Inc. It trades about 0.18 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.33 per unit of volatility. If you would invest  7,306  in CarMax Inc on September 4, 2024 and sell it today you would earn a total of  1,012  from holding CarMax Inc or generate 13.85% return on investment over 90 days.

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

Ford Motor  vs.  CarMax Inc

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Ford and CarMax

The main advantage of trading using opposite Ford and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.