Correlation Between Lands End and CarMax
Can any of the company-specific risk be diversified away by investing in both Lands End 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 Lands End and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lands End and CarMax Inc, you can compare the effects of market volatilities on Lands End 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 Lands End with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lands End and CarMax.
Diversification Opportunities for Lands End and CarMax
Excellent diversification
The 3 months correlation between Lands and CarMax is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lands End and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Lands End 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 Lands End 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 Lands End i.e., Lands End and CarMax go up and down completely randomly.
Pair Corralation between Lands End and CarMax
Allowing for the 90-day total investment horizon Lands End is expected to under-perform the CarMax. In addition to that, Lands End is 1.97 times more volatile than CarMax Inc. It trades about -0.09 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.09 per unit of volatility. If you would invest 7,650 in CarMax Inc on September 24, 2024 and sell it today you would earn a total of 777.00 from holding CarMax Inc or generate 10.16% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Lands End vs. CarMax Inc
Performance |
Timeline |
Lands End |
CarMax Inc |
Lands End and CarMax Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Lands End and CarMax
The main advantage of trading using opposite Lands End and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lands End 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 Lands End 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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