Correlation Between AutoNation and KAR Auction

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

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

Diversification Opportunities for AutoNation and KAR Auction

0.1

Correlation Coefficient

AutoNation  KAR Auction

Average diversification

The 3 months correlation between AutoNation and KAR is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and KAR Auction Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAR Auction Services and AutoNation 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 AutoNation are associated (or correlated) with KAR Auction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAR Auction Services has no effect on the direction of AutoNation i.e., AutoNation and KAR Auction go up and down completely randomly.

Pair Corralation between AutoNation and KAR Auction

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.94 times more return on investment than KAR Auction. However, AutoNation is 1.07 times less risky than KAR Auction. It trades about -0.02 of its potential returns per unit of risk. KAR Auction Services is currently generating about -0.02 per unit of risk. If you would invest  16,872  in AutoNation on December 28, 2024 and sell it today you would lose (545.00) from holding AutoNation or give up 3.23% of portfolio value over 90 days.

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

AutoNation  vs.  KAR Auction Services

AutoNation

Risk-Adjusted Performance

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

KAR Auction Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days KAR Auction Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, KAR Auction is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with AutoNation and KAR Auction

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

The idea behind AutoNation and KAR Auction Services 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.