Correlation Between CarMax and Petroleo Brasileiro

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

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

Diversification Opportunities for CarMax and Petroleo Brasileiro

-0.08

Correlation Coefficient

CarMax  Petroleo Brasileiro

Good diversification

The 3 months correlation between CarMax and Petroleo is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro 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 Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of CarMax i.e., CarMax and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between CarMax and Petroleo Brasileiro

Considering the 90-day investment horizon CarMax Inc is expected to under-perform the Petroleo Brasileiro. But the stock apears to be less risky and, when comparing its historical volatility, CarMax Inc is 1.25 times less risky than Petroleo Brasileiro. The stock trades about -0.08 of its potential returns per unit of risk. The Petroleo Brasileiro Petrobras is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,315  in Petroleo Brasileiro Petrobras on October 4, 2024 and sell it today you would lose (0.50) from holding Petroleo Brasileiro Petrobras or give up 0.04% of portfolio value over 90 days.

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

CarMax Inc  vs.  Petroleo Brasileiro Petrobras

CarMax Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, CarMax may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with CarMax and Petroleo Brasileiro

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

The idea behind CarMax Inc and Petroleo Brasileiro Petrobras 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.