Correlation Between CarMax and US Bancorp

Can any of the company-specific risk be diversified away by investing in both CarMax and US Bancorp 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 Bancorp 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 Bancorp, you can compare the effects of market volatilities on CarMax and US Bancorp 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 Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and US Bancorp.

Diversification Opportunities for CarMax and US Bancorp

0.59

Correlation Coefficient

CarMax  US Bancorp

Very weak diversification

The 3 months correlation between CarMax and USB is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of CarMax i.e., CarMax and US Bancorp go up and down completely randomly.

Pair Corralation between CarMax and US Bancorp

Assuming the 90 days trading horizon CarMax is expected to generate 1.6 times less return on investment than US Bancorp. But when comparing it to its historical volatility, CarMax Inc is 1.44 times less risky than US Bancorp. It trades about 0.1 of its potential returns per unit of risk. US Bancorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  53,514  in US Bancorp on September 28, 2024 and sell it today you would earn a total of  44,997  from holding US Bancorp or generate 84.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

CarMax Inc  vs.  US Bancorp

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.

US Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CarMax and US Bancorp

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

The idea behind CarMax Inc and US Bancorp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.