Correlation Between Credicorp and CarMax

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

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

Diversification Opportunities for Credicorp and CarMax

0.62

Correlation Coefficient

Credicorp  CarMax

Poor diversification

The 3 months correlation between Credicorp and CarMax is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Credicorp and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Credicorp 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 Credicorp 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 Credicorp i.e., Credicorp and CarMax go up and down completely randomly.

Pair Corralation between Credicorp and CarMax

Assuming the 90 days trading horizon Credicorp is expected to generate 1.88 times less return on investment than CarMax. But when comparing it to its historical volatility, Credicorp is 1.09 times less risky than CarMax. It trades about 0.09 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  137,111  in CarMax Inc on September 27, 2024 and sell it today you would earn a total of  31,489  from holding CarMax Inc or generate 22.97% return on investment over 90 days.

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

Credicorp  vs.  CarMax Inc

Credicorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Credicorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Credicorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CarMax Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Credicorp and CarMax

The main advantage of trading using opposite Credicorp and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credicorp 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 Credicorp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.