Correlation Between Evoqua Water and CarMax

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

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

Diversification Opportunities for Evoqua Water and CarMax

0.3

Correlation Coefficient

Evoqua Water  CarMax

Weak diversification

The 3 months correlation between Evoqua and CarMax is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Evoqua Water Technologies and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Evoqua Water 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 Evoqua Water Technologies 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 Evoqua Water i.e., Evoqua Water and CarMax go up and down completely randomly.

Pair Corralation between Evoqua Water and CarMax

Given the investment horizon of 90 days Evoqua Water Technologies is expected to generate 0.89 times more return on investment than CarMax. However, Evoqua Water Technologies is 1.12 times less risky than CarMax. It trades about 0.05 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.01 per unit of risk. If you would invest  3,867  in Evoqua Water Technologies on January 26, 2024 and sell it today you would earn a total of  1,121  from holding Evoqua Water Technologies or generate 28.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	53.44%
Values	Daily Returns

Evoqua Water Technologies  vs.  CarMax Inc

Evoqua Water Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evoqua Water Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Evoqua Water is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Evoqua Water and CarMax

The main advantage of trading using opposite Evoqua Water and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evoqua Water 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 Evoqua Water Technologies 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.