Correlation Between Diversified International and CarMax

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

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

Diversification Opportunities for Diversified International and CarMax

-0.4

Correlation Coefficient

Diversified International  CarMax

Very good diversification

The 3 months correlation between Diversified and CarMax is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Diversified International Fund and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Diversified International 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 Diversified International Fund 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 Diversified International i.e., Diversified International and CarMax go up and down completely randomly.

Pair Corralation between Diversified International and CarMax

Assuming the 90 days horizon Diversified International Fund is expected to under-perform the CarMax. But the mutual fund apears to be less risky and, when comparing its historical volatility, Diversified International Fund is 2.21 times less risky than CarMax. The mutual fund trades about -0.01 of its potential returns per unit of risk. The CarMax Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,628  in CarMax Inc on September 12, 2024 and sell it today you would earn a total of  1,092  from holding CarMax Inc or generate 14.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Diversified International Fund  vs.  CarMax Inc

Diversified International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified International Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Diversified International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Diversified International and CarMax

The main advantage of trading using opposite Diversified International and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified International 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 Diversified International Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.