Correlation Between CarGurus and ACV Auctions

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

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

Diversification Opportunities for CarGurus and ACV Auctions

0.89

Correlation Coefficient

CarGurus  ACV Auctions

Very poor diversification

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

Pair Corralation between CarGurus and ACV Auctions

Given the investment horizon of 90 days CarGurus is expected to generate 0.9 times more return on investment than ACV Auctions. However, CarGurus is 1.11 times less risky than ACV Auctions. It trades about -0.08 of its potential returns per unit of risk. ACV Auctions is currently generating about -0.18 per unit of risk. If you would invest  3,703  in CarGurus on December 28, 2024 and sell it today you would lose (570.00) from holding CarGurus or give up 15.39% of portfolio value over 90 days.

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

CarGurus  vs.  ACV Auctions

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.

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.

Pair Trading with CarGurus and ACV Auctions

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

The idea behind CarGurus and ACV Auctions 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.