Correlation Between 1StdibsCom and KAR Auction

Can any of the company-specific risk be diversified away by investing in both 1StdibsCom 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 1StdibsCom and KAR Auction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1StdibsCom and KAR Auction Services, you can compare the effects of market volatilities on 1StdibsCom 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 1StdibsCom with a short position of KAR Auction. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1StdibsCom and KAR Auction.

Diversification Opportunities for 1StdibsCom and KAR Auction

-0.7

Correlation Coefficient

1StdibsCom  KAR Auction

Excellent diversification

The 3 months correlation between 1StdibsCom and KAR is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding 1StdibsCom 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 1StdibsCom 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 1StdibsCom 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 1StdibsCom i.e., 1StdibsCom and KAR Auction go up and down completely randomly.

Pair Corralation between 1StdibsCom and KAR Auction

Given the investment horizon of 90 days 1StdibsCom is expected to under-perform the KAR Auction. But the stock apears to be less risky and, when comparing its historical volatility, 1StdibsCom is 1.06 times less risky than KAR Auction. The stock trades about -0.13 of its potential returns per unit of risk. The KAR Auction Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,690  in KAR Auction Services on September 4, 2024 and sell it today you would earn a total of  318.00  from holding KAR Auction Services or generate 18.82% return on investment over 90 days.

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

1StdibsCom  vs.  KAR Auction Services

1StdibsCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 1StdibsCom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

KAR Auction Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 1StdibsCom and KAR Auction

The main advantage of trading using opposite 1StdibsCom and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1StdibsCom 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 1StdibsCom 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.