Correlation Between Capital Drilling and CarMax

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

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

Diversification Opportunities for Capital Drilling and CarMax

0.64

Correlation Coefficient

Capital Drilling  CarMax

Poor diversification

The 3 months correlation between Capital and CarMax is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Capital Drilling and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Capital Drilling 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 Capital Drilling 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 Capital Drilling i.e., Capital Drilling and CarMax go up and down completely randomly.

Pair Corralation between Capital Drilling and CarMax

Assuming the 90 days trading horizon Capital Drilling is expected to under-perform the CarMax. In addition to that, Capital Drilling is 1.78 times more volatile than CarMax Inc. It trades about -0.11 of its total potential returns per unit of risk. CarMax Inc is currently generating about -0.06 per unit of volatility. If you would invest  8,273  in CarMax Inc on December 29, 2024 and sell it today you would lose (746.00) from holding CarMax Inc or give up 9.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Capital Drilling  vs.  CarMax Inc

Capital Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 unsteady 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 Capital Drilling and CarMax

The main advantage of trading using opposite Capital Drilling and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Drilling 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 Capital Drilling 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.