Correlation Between OReilly Automotive and CarMax

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

Diversification Opportunities for OReilly Automotive and CarMax

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between OReilly and CarMax is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and OReilly Automotive 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 OReilly Automotive 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 OReilly Automotive i.e., OReilly Automotive and CarMax go up and down completely randomly.

Pair Corralation between OReilly Automotive and CarMax

Given the investment horizon of 90 days OReilly Automotive is expected to generate 128.51 times less return on investment than CarMax. But when comparing it to its historical volatility, OReilly Automotive is 1.51 times less risky than CarMax. It trades about 0.0 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  7,168  in CarMax Inc on April 16, 2024 and sell it today you would earn a total of  1,032  from holding CarMax Inc or generate 14.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

OReilly Automotive  vs.  CarMax Inc

 Performance 
       Timeline  
OReilly Automotive 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days OReilly Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, OReilly Automotive is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
CarMax Inc 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.

OReilly Automotive and CarMax Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with OReilly Automotive and CarMax

The main advantage of trading using opposite OReilly Automotive and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OReilly Automotive 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 OReilly Automotive 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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