Correlation Between Broadridge Financial and CarMax

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

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

Diversification Opportunities for Broadridge Financial and CarMax

0.44

Correlation Coefficient

Broadridge Financial  CarMax

Very weak diversification

The 3 months correlation between Broadridge and CarMax is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Broadridge Financial Solutions and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Broadridge Financial 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 Broadridge Financial Solutions 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 Broadridge Financial i.e., Broadridge Financial and CarMax go up and down completely randomly.

Pair Corralation between Broadridge Financial and CarMax

Assuming the 90 days trading horizon Broadridge Financial Solutions is expected to generate 0.51 times more return on investment than CarMax. However, Broadridge Financial Solutions is 1.96 times less risky than CarMax. It trades about 0.1 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.06 per unit of risk. If you would invest  22,297  in Broadridge Financial Solutions on December 30, 2024 and sell it today you would earn a total of  1,439  from holding Broadridge Financial Solutions or generate 6.45% return on investment over 90 days.

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

Broadridge Financial Solutions  vs.  CarMax Inc

Broadridge Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broadridge Financial Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Broadridge Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CarMax Inc

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Broadridge Financial and CarMax

The main advantage of trading using opposite Broadridge Financial and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadridge Financial 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 Broadridge Financial Solutions 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.