Correlation Between AutoNation and Kingsway Financial

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

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

Diversification Opportunities for AutoNation and Kingsway Financial

0.23

Correlation Coefficient

AutoNation  Kingsway Financial

Modest diversification

The 3 months correlation between AutoNation and Kingsway is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Kingsway Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingsway Financial 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 Kingsway Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingsway Financial has no effect on the direction of AutoNation i.e., AutoNation and Kingsway Financial go up and down completely randomly.

Pair Corralation between AutoNation and Kingsway Financial

Allowing for the 90-day total investment horizon AutoNation is expected to under-perform the Kingsway Financial. But the stock apears to be less risky and, when comparing its historical volatility, AutoNation is 1.02 times less risky than Kingsway Financial. The stock trades about -0.04 of its potential returns per unit of risk. The Kingsway Financial Services is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  846.00  in Kingsway Financial Services on December 30, 2024 and sell it today you would lose (41.00) from holding Kingsway Financial Services or give up 4.85% of portfolio value over 90 days.

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

AutoNation  vs.  Kingsway Financial 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.

Kingsway Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kingsway Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Kingsway Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AutoNation and Kingsway Financial

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

The idea behind AutoNation and Kingsway Financial 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.