Correlation Between Petroleo Brasileiro and CarMax

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

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

Diversification Opportunities for Petroleo Brasileiro and CarMax

-0.32

Correlation Coefficient

Petroleo Brasileiro  CarMax

Very good diversification

The 3 months correlation between Petroleo and CarMax is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Petroleo Brasileiro 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 Petroleo Brasileiro Petrobras 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 Petroleo Brasileiro i.e., Petroleo Brasileiro and CarMax go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and CarMax

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 4.93 times less return on investment than CarMax. In addition to that, Petroleo Brasileiro is 1.19 times more volatile than CarMax Inc. It trades about 0.02 of its total potential returns per unit of risk. CarMax Inc is currently generating about 0.1 per unit of volatility. If you would invest  114,155  in CarMax Inc on September 28, 2024 and sell it today you would earn a total of  54,445  from holding CarMax Inc or generate 47.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.25%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  CarMax Inc

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Petroleo Brasileiro is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 Petroleo Brasileiro and CarMax

The main advantage of trading using opposite Petroleo Brasileiro and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petroleo Brasileiro 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 Petroleo Brasileiro Petrobras 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.