Correlation Between Verizon Communications and CarMax

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

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

Diversification Opportunities for Verizon Communications and CarMax

-0.29

Correlation Coefficient

Verizon Communications  CarMax

Very good diversification

The 3 months correlation between Verizon and CarMax is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc and Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and CarMax go up and down completely randomly.

Pair Corralation between Verizon Communications and CarMax

Assuming the 90 days horizon Verizon Communications is expected to generate 1.55 times more return on investment than CarMax. However, Verizon Communications is 1.55 times more volatile than CarMax Inc. It trades about -0.12 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.24 per unit of risk. If you would invest  86,000  in Verizon Communications on October 8, 2024 and sell it today you would lose (2,250) from holding Verizon Communications or give up 2.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Verizon Communications  vs.  CarMax Inc

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CarMax Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarMax Inc are ranked lower than 8 (%) 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.

Pair Trading with Verizon Communications and CarMax

The main advantage of trading using opposite Verizon Communications and CarMax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.