Correlation Between MSCI ACWI and CarMax

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

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

Diversification Opportunities for MSCI ACWI and CarMax

0.78

Correlation Coefficient

MSCI ACWI  CarMax

Poor diversification

The 3 months correlation between MSCI and CarMax is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding MSCI ACWI exAUCONSUMER and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and MSCI ACWI 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 MSCI ACWI exAUCONSUMER 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 MSCI ACWI i.e., MSCI ACWI and CarMax go up and down completely randomly.

Pair Corralation between MSCI ACWI and CarMax

Assuming the 90 days horizon MSCI ACWI exAUCONSUMER is expected to generate 0.21 times more return on investment than CarMax. However, MSCI ACWI exAUCONSUMER is 4.75 times less risky than CarMax. It trades about -0.03 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.31 per unit of risk. If you would invest  2,505  in MSCI ACWI exAUCONSUMER on October 9, 2024 and sell it today you would lose (4.00) from holding MSCI ACWI exAUCONSUMER or give up 0.16% of portfolio value over 90 days.

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

MSCI ACWI exAUCONSUMER  vs.  CarMax Inc

MSCI ACWI exAUCONSUMER

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI ACWI exAUCONSUMER are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, MSCI ACWI is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSCI ACWI and CarMax

The main advantage of trading using opposite MSCI ACWI and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSCI ACWI 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 MSCI ACWI exAUCONSUMER 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.