Correlation Between Thomson Reuters and CarMax

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

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

Diversification Opportunities for Thomson Reuters and CarMax

0.01

Correlation Coefficient

Thomson Reuters  CarMax

Significant diversification

The 3 months correlation between Thomson and CarMax is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Thomson Reuters and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Thomson Reuters 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 Thomson Reuters 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 Thomson Reuters i.e., Thomson Reuters and CarMax go up and down completely randomly.

Pair Corralation between Thomson Reuters and CarMax

Considering the 90-day investment horizon Thomson Reuters is expected to generate 0.67 times more return on investment than CarMax. However, Thomson Reuters is 1.5 times less risky than CarMax. It trades about 0.1 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.05 per unit of risk. If you would invest  16,054  in Thomson Reuters on December 28, 2024 and sell it today you would earn a total of  1,214  from holding Thomson Reuters or generate 7.56% return on investment over 90 days.

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

Thomson Reuters  vs.  CarMax Inc

Thomson Reuters

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thomson Reuters are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Thomson Reuters may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 fairly strong primary indicators, CarMax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Thomson Reuters and CarMax

The main advantage of trading using opposite Thomson Reuters and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thomson Reuters 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 Thomson Reuters 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.