Correlation Between CarMax and Bank of America

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

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

Diversification Opportunities for CarMax and Bank of America

0.52

Correlation Coefficient

CarMax  Bank of America

Very weak diversification

The 3 months correlation between CarMax and Bank is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of CarMax i.e., CarMax and Bank of America go up and down completely randomly.

Pair Corralation between CarMax and Bank of America

Assuming the 90 days trading horizon CarMax Inc is expected to generate 4.04 times more return on investment than Bank of America. However, CarMax is 4.04 times more volatile than Bank of America. It trades about 0.19 of its potential returns per unit of risk. Bank of America is currently generating about -0.45 per unit of risk. If you would invest  147,096  in CarMax Inc on September 27, 2024 and sell it today you would earn a total of  21,504  from holding CarMax Inc or generate 14.62% 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.  Bank of America

CarMax Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CarMax showed solid returns over the last few months and may actually be approaching a breakup point.

Bank of America

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bank of America showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarMax and Bank of America

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

The idea behind CarMax Inc and Bank of America 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.