Correlation Between CarMax and Visa

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

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

Diversification Opportunities for CarMax and Visa

0.61

Correlation Coefficient

CarMax  Visa

Poor diversification

The 3 months correlation between CarMax and Visa is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc and CarMax 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 CarMax Inc are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of CarMax i.e., CarMax and Visa go up and down completely randomly.

Pair Corralation between CarMax and Visa

Assuming the 90 days trading horizon CarMax Inc is expected to generate 4.96 times more return on investment than Visa. However, CarMax is 4.96 times more volatile than Visa Inc. It trades about 0.19 of its potential returns per unit of risk. Visa Inc is currently generating about -0.01 per unit of risk. If you would invest  147,096  in CarMax Inc on September 27, 2024 and sell it today you would earn a total of  21,504  from holding CarMax Inc or generate 14.62% return on investment over 90 days.

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

CarMax Inc  vs.  Visa Inc

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.

Visa Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarMax and Visa

The main advantage of trading using opposite CarMax and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Visa 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 Visa will offset losses from the drop in Visa's long position.

The idea behind CarMax Inc and Visa 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.