Correlation Between ACV Auctions and CarGurus

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

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

Diversification Opportunities for ACV Auctions and CarGurus

0.89

Correlation Coefficient

ACV Auctions  CarGurus

Very poor diversification

The 3 months correlation between ACV and CarGurus is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ACV Auctions and CarGurus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarGurus and ACV Auctions 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 ACV Auctions are associated (or correlated) with CarGurus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarGurus has no effect on the direction of ACV Auctions i.e., ACV Auctions and CarGurus go up and down completely randomly.

Pair Corralation between ACV Auctions and CarGurus

Given the investment horizon of 90 days ACV Auctions is expected to under-perform the CarGurus. In addition to that, ACV Auctions is 1.06 times more volatile than CarGurus. It trades about -0.18 of its total potential returns per unit of risk. CarGurus is currently generating about -0.11 per unit of volatility. If you would invest  3,703  in CarGurus on December 28, 2024 and sell it today you would lose (821.00) from holding CarGurus or give up 22.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

ACV Auctions  vs.  CarGurus

ACV Auctions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ACV Auctions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

CarGurus

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarGurus has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ACV Auctions and CarGurus

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

The idea behind ACV Auctions and CarGurus 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.