Correlation Between Mothercare Plc and CarMax

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

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

Diversification Opportunities for Mothercare Plc and CarMax

0.0

Correlation Coefficient

Mothercare Plc  CarMax

Pay attention - limited upside

The 3 months correlation between Mothercare and CarMax is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Mothercare Plc Ord and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Mothercare Plc 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 Mothercare Plc Ord 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 Mothercare Plc i.e., Mothercare Plc and CarMax go up and down completely randomly.

Pair Corralation between Mothercare Plc and CarMax

Assuming the 90 days horizon Mothercare Plc Ord is expected to under-perform the CarMax. In addition to that, Mothercare Plc is 1.76 times more volatile than CarMax Inc. It trades about -0.06 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.0 per unit of volatility. If you would invest  8,578  in CarMax Inc on January 19, 2024 and sell it today you would lose (1,787) from holding CarMax Inc or give up 20.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	60.61%
Values	Daily Returns

Mothercare Plc Ord  vs.  CarMax Inc

Mothercare Plc Ord

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mothercare Plc Ord has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mothercare Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

CarMax Inc

Risk-Adjusted Performance

0 of 100

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 fairly strong primary indicators, CarMax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mothercare Plc and CarMax

The main advantage of trading using opposite Mothercare Plc and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mothercare Plc 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 Mothercare Plc Ord 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.