Correlation Between CarMax and Exxon

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

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

Diversification Opportunities for CarMax and Exxon

0.55

Correlation Coefficient

CarMax  Exxon

Very weak diversification

The 3 months correlation between CarMax and Exxon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of CarMax i.e., CarMax and Exxon go up and down completely randomly.

Pair Corralation between CarMax and Exxon

Considering the 90-day investment horizon CarMax is expected to generate 1.27 times less return on investment than Exxon. In addition to that, CarMax is 1.7 times more volatile than Exxon Mobil Corp. It trades about 0.02 of its total potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.05 per unit of volatility. If you would invest  8,595  in Exxon Mobil Corp on June 23, 2024 and sell it today you would earn a total of  2,932  from holding Exxon Mobil Corp or generate 34.11% return on investment over 90 days.

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

CarMax Inc  vs.  Exxon Mobil Corp

CarMax Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, CarMax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Exxon Mobil Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CarMax and Exxon

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

The idea behind CarMax Inc and Exxon Mobil 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.