Correlation Between Visa and CarMax
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and CarMax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and CarMax Inc, you can compare the effects of market volatilities on Visa 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 Visa with a short position of CarMax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and CarMax.
Diversification Opportunities for Visa and CarMax
Poor diversification
The 3 months correlation between Visa and CarMax is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Visa 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 Visa Class A 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 Visa i.e., Visa and CarMax go up and down completely randomly.
Pair Corralation between Visa and CarMax
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.58 times more return on investment than CarMax. However, Visa Class A is 1.73 times less risky than CarMax. It trades about 0.25 of its potential returns per unit of risk. CarMax Inc is currently generating about 0.08 per unit of risk. If you would invest 27,117 in Visa Class A on September 26, 2024 and sell it today you would earn a total of 4,948 from holding Visa Class A or generate 18.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 96.92% |
Values | Daily Returns |
Visa Class A vs. CarMax Inc
Performance |
Timeline |
Visa Class A |
CarMax Inc |
Visa and CarMax Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Visa and CarMax
The main advantage of trading using opposite Visa and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.Visa vs. American Express | Visa vs. Upstart Holdings | Visa vs. Capital One Financial | Visa vs. Ally Financial |
CarMax vs. Uniper SE | CarMax vs. Mulberry Group PLC | CarMax vs. London Security Plc | CarMax vs. Triad Group PLC |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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