Correlation Between CarMax and Dream Office

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

By analyzing existing cross correlation between CarMax Inc and Dream Office Real, you can compare the effects of market volatilities on CarMax and Dream Office 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 Dream Office. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Dream Office.

Diversification Opportunities for CarMax and Dream Office

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Correlation Coefficient

CarMax  Dream Office

Pay attention - limited upside

The 3 months correlation between CarMax and Dream is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Dream Office Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dream Office Real 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 Dream Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dream Office Real has no effect on the direction of CarMax i.e., CarMax and Dream Office go up and down completely randomly.

Pair Corralation between CarMax and Dream Office

Considering the 90-day investment horizon CarMax Inc is expected to generate 0.7 times more return on investment than Dream Office. However, CarMax Inc is 1.43 times less risky than Dream Office. It trades about -0.01 of its potential returns per unit of risk. Dream Office Real is currently generating about -0.02 per unit of risk. If you would invest  7,832  in CarMax Inc on March 18, 2024 and sell it today you would lose (734.00) from holding CarMax Inc or give up 9.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	91.83%
Values	Daily Returns

CarMax Inc  vs.  Dream Office Real

CarMax Inc

Risk-Adjusted Performance

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Very Weak

Over the last 90 days CarMax Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Dream Office Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dream Office Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Dream Office is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CarMax and Dream Office

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

The idea behind CarMax Inc and Dream Office Real 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.