Correlation Between Penske Automotive and CarMax

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

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

Diversification Opportunities for Penske Automotive and CarMax

0.94

Correlation Coefficient

Penske Automotive  CarMax

Almost no diversification

The 3 months correlation between Penske and CarMax is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Penske Automotive Group and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Penske Automotive 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 Penske Automotive Group 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 Penske Automotive i.e., Penske Automotive and CarMax go up and down completely randomly.

Pair Corralation between Penske Automotive and CarMax

Assuming the 90 days horizon Penske Automotive is expected to generate 2.52 times less return on investment than CarMax. But when comparing it to its historical volatility, Penske Automotive Group is 1.26 times less risky than CarMax. It trades about 0.07 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,828  in CarMax Inc on September 24, 2024 and sell it today you would earn a total of  1,218  from holding CarMax Inc or generate 17.84% return on investment over 90 days.

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

Penske Automotive Group  vs.  CarMax Inc

Penske Automotive

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Penske Automotive Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Penske Automotive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CarMax Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CarMax reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penske Automotive and CarMax

The main advantage of trading using opposite Penske Automotive and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penske Automotive 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 Penske Automotive Group 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.