Correlation Between CarMax and Thomson Reuters

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

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

Diversification Opportunities for CarMax and Thomson Reuters

-0.07

Correlation Coefficient

CarMax  Thomson Reuters

Good diversification

The 3 months correlation between CarMax and Thomson is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Thomson Reuters Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thomson Reuters Corp 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 Thomson Reuters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thomson Reuters Corp has no effect on the direction of CarMax i.e., CarMax and Thomson Reuters go up and down completely randomly.

Pair Corralation between CarMax and Thomson Reuters

Considering the 90-day investment horizon CarMax is expected to generate 1.05 times less return on investment than Thomson Reuters. In addition to that, CarMax is 2.0 times more volatile than Thomson Reuters Corp. It trades about 0.03 of its total potential returns per unit of risk. Thomson Reuters Corp is currently generating about 0.07 per unit of volatility. If you would invest  11,057  in Thomson Reuters Corp on September 25, 2024 and sell it today you would earn a total of  5,258  from holding Thomson Reuters Corp or generate 47.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

CarMax Inc  vs.  Thomson Reuters Corp

CarMax Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 9 (%) 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.

Thomson Reuters Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thomson Reuters Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Thomson Reuters is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CarMax and Thomson Reuters

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

The idea behind CarMax Inc and Thomson Reuters Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.