Correlation Between CarMax and Us Government

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

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

Diversification Opportunities for CarMax and Us Government

0.6

Correlation Coefficient

CarMax  Us Government

Poor diversification

The 3 months correlation between CarMax and GVPIX is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Us Government Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Plus 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Plus has no effect on the direction of CarMax i.e., CarMax and Us Government go up and down completely randomly.

Pair Corralation between CarMax and Us Government

Considering the 90-day investment horizon CarMax Inc is expected to under-perform the Us Government. In addition to that, CarMax is 1.38 times more volatile than Us Government Plus. It trades about -0.01 of its total potential returns per unit of risk. Us Government Plus is currently generating about 0.17 per unit of volatility. If you would invest  3,458  in Us Government Plus on March 22, 2024 and sell it today you would earn a total of  149.00  from holding Us Government Plus or generate 4.31% 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.  Us Government Plus

CarMax Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarMax Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Us Government Plus

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Us Government Plus are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CarMax and Us Government

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

The idea behind CarMax Inc and Us Government Plus 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.