Can any of the company-specific risk be diversified away by investing in both MarineMax and T.J. Maxx 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 MarineMax and T.J. Maxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MarineMax and The TJX Companies, you can compare the effects of market volatilities on MarineMax and T.J. Maxx 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 MarineMax with a short position of T.J. Maxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of MarineMax and T.J. Maxx.
Diversification Opportunities for MarineMax and T.J. Maxx
The 3 months correlation between MarineMax and T.J. is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding MarineMax and The TJX Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TJX Companies and MarineMax 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 MarineMax are associated (or correlated) with T.J. Maxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TJX Companies has no effect on the direction of MarineMax i.e., MarineMax and T.J. Maxx go up and down completely randomly.
Considering the 90-day investment horizon MarineMax is expected to generate 5.03 times more return on investment than T.J. Maxx. However, MarineMax is 5.03 times more volatile than The TJX Companies. It trades about 0.25 of its potential returns per unit of risk. The TJX Companies is currently generating about 0.32 per unit of risk. If you would invest 2,578 in MarineMax on March 6, 2024 and sell it today you would earn a total of 895.00 from holding MarineMax or generate 34.72% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in MarineMax are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, MarineMax displayed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in The TJX Companies are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward-looking indicators, T.J. Maxx may actually be approaching a critical reversion point that can send shares even higher in July 2024.