Correlation Between CarMax and Morningstar Unconstrained

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Can any of the company-specific risk be diversified away by investing in both CarMax and Morningstar Unconstrained 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 Morningstar Unconstrained into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Morningstar Unconstrained Allocation, you can compare the effects of market volatilities on CarMax and Morningstar Unconstrained 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 Morningstar Unconstrained. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Morningstar Unconstrained.

Diversification Opportunities for CarMax and Morningstar Unconstrained

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between CarMax and Morningstar is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Morningstar Unconstrained Allo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Unconstrained 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 Morningstar Unconstrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Unconstrained has no effect on the direction of CarMax i.e., CarMax and Morningstar Unconstrained go up and down completely randomly.

Pair Corralation between CarMax and Morningstar Unconstrained

Considering the 90-day investment horizon CarMax Inc is expected to generate 3.72 times more return on investment than Morningstar Unconstrained. However, CarMax is 3.72 times more volatile than Morningstar Unconstrained Allocation. It trades about 0.18 of its potential returns per unit of risk. Morningstar Unconstrained Allocation is currently generating about 0.08 per unit of risk. If you would invest  7,257  in CarMax Inc on April 18, 2024 and sell it today you would earn a total of  1,033  from holding CarMax Inc or generate 14.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

CarMax Inc  vs.  Morningstar Unconstrained Allo

 Performance 
       Timeline  
CarMax Inc 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent primary indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.
Morningstar Unconstrained 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Unconstrained Allocation are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Morningstar Unconstrained may actually be approaching a critical reversion point that can send shares even higher in August 2024.

CarMax and Morningstar Unconstrained Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CarMax and Morningstar Unconstrained

The main advantage of trading using opposite CarMax and Morningstar Unconstrained positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Morningstar Unconstrained 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 Morningstar Unconstrained will offset losses from the drop in Morningstar Unconstrained's long position.
The idea behind CarMax Inc and Morningstar Unconstrained Allocation 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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