Correlation Between ATT and CarMax

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

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

Diversification Opportunities for ATT and CarMax

0.43

Correlation Coefficient

ATT  CarMax

Very weak diversification

The 3 months correlation between ATT and CarMax is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and ATT 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 ATT Inc 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 ATT i.e., ATT and CarMax go up and down completely randomly.

Pair Corralation between ATT and CarMax

Taking into account the 90-day investment horizon ATT is expected to generate 1.57 times less return on investment than CarMax. But when comparing it to its historical volatility, ATT Inc is 1.58 times less risky than CarMax. It trades about 0.01 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,048  in CarMax Inc on January 25, 2024 and sell it today you would lose (79.00) from holding CarMax Inc or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ATT Inc  vs.  CarMax Inc

ATT Inc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ATT and CarMax

The main advantage of trading using opposite ATT and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.