Correlation Between CarMax and Global Payments
Can any of the company-specific risk be diversified away by investing in both CarMax and Global Payments 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 Global Payments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarMax Inc and Global Payments, you can compare the effects of market volatilities on CarMax and Global Payments 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 Global Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarMax and Global Payments.
Diversification Opportunities for CarMax and Global Payments
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CarMax and Global is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding CarMax Inc and Global Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Payments 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 Global Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Payments has no effect on the direction of CarMax i.e., CarMax and Global Payments go up and down completely randomly.
Pair Corralation between CarMax and Global Payments
Considering the 90-day investment horizon CarMax is expected to generate 1.42 times less return on investment than Global Payments. But when comparing it to its historical volatility, CarMax Inc is 1.03 times less risky than Global Payments. It trades about 0.13 of its potential returns per unit of risk. Global Payments is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 10,242 in Global Payments on August 29, 2024 and sell it today you would earn a total of 1,504 from holding Global Payments or generate 14.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CarMax Inc vs. Global Payments
Performance |
| Timeline |
| CarMax Inc |
| Global Payments |
CarMax and Global Payments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CarMax and Global Payments
The main advantage of trading using opposite CarMax and Global Payments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarMax position performs unexpectedly, Global Payments 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 Global Payments will offset losses from the drop in Global Payments' long position.The idea behind CarMax Inc and Global Payments 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.| Global Payments vs. Copart Inc | Global Payments vs. ABM Industries Incorporated | Global Payments vs. Thomson Reuters Corp | Global Payments vs. Aramark Holdings |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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