Correlation Between Cboe UK and CarMax

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

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

Diversification Opportunities for Cboe UK and CarMax

0.9

Correlation Coefficient

Cboe UK  CarMax

Almost no diversification

The 3 months correlation between Cboe and CarMax is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Cboe UK Consumer and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Cboe UK 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 Cboe UK Consumer 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 Cboe UK i.e., Cboe UK and CarMax go up and down completely randomly.

Pair Corralation between Cboe UK and CarMax

Assuming the 90 days trading horizon Cboe UK is expected to generate 1.15 times less return on investment than CarMax. But when comparing it to its historical volatility, Cboe UK Consumer is 2.04 times less risky than CarMax. It trades about 0.14 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,826  in CarMax Inc on September 26, 2024 and sell it today you would earn a total of  674.00  from holding CarMax Inc or generate 8.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Cboe UK Consumer  vs.  CarMax Inc

Pair Trading with Cboe UK and CarMax

The main advantage of trading using opposite Cboe UK and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cboe UK 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 Cboe UK Consumer 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.

Check out your portfolio center.

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.