Correlation Between CarMax and Evoqua Water

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

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

Diversification Opportunities for CarMax and Evoqua Water

0.3

Correlation Coefficient

CarMax  Evoqua Water

Weak diversification

The 3 months correlation between CarMax and Evoqua is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Evoqua Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evoqua Water Technologies and CarMax 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 CarMax Inc are associated (or correlated) with Evoqua Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evoqua Water Technologies has no effect on the direction of CarMax i.e., CarMax and Evoqua Water go up and down completely randomly.

Pair Corralation between CarMax and Evoqua Water

Considering the 90-day investment horizon CarMax Inc is expected to under-perform the Evoqua Water. In addition to that, CarMax is 1.12 times more volatile than Evoqua Water Technologies. It trades about -0.01 of its total potential returns per unit of risk. Evoqua Water Technologies is currently generating about 0.05 per unit of volatility. 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

CarMax Inc  vs.  Evoqua Water Technologies

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.

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.

Pair Trading with CarMax and Evoqua Water

The main advantage of trading using opposite CarMax and Evoqua Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Evoqua Water 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 Evoqua Water will offset losses from the drop in Evoqua Water's long position.

The idea behind CarMax Inc and Evoqua Water Technologies 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.