Correlation Between AutoZone and KAR Auction

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

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

Diversification Opportunities for AutoZone and KAR Auction

0.12

Correlation Coefficient

AutoZone  KAR Auction

Average diversification

The 3 months correlation between AutoZone and KAR is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone 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 AutoZone 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 AutoZone 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 AutoZone i.e., AutoZone and KAR Auction go up and down completely randomly.

Pair Corralation between AutoZone and KAR Auction

Assuming the 90 days horizon AutoZone is expected to generate 0.59 times more return on investment than KAR Auction. However, AutoZone is 1.7 times less risky than KAR Auction. It trades about 0.18 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  308,500  in AutoZone on December 29, 2024 and sell it today you would earn a total of  45,300  from holding AutoZone or generate 14.68% return on investment over 90 days.

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

AutoZone  vs.  KAR Auction Services

AutoZone

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone reported solid returns over the last few months and may actually be approaching a breakup point.

KAR Auction Services

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, KAR Auction is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AutoZone and KAR Auction

The main advantage of trading using opposite AutoZone and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone 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 AutoZone 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.