Correlation Between Genpact and KAR Auction

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

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

Diversification Opportunities for Genpact and KAR Auction

0.93

Correlation Coefficient

Genpact  KAR Auction

Almost no diversification

The 3 months correlation between Genpact and KAR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Genpact Limited 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 Genpact 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 Genpact Limited 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 Genpact i.e., Genpact and KAR Auction go up and down completely randomly.

Pair Corralation between Genpact and KAR Auction

Taking into account the 90-day investment horizon Genpact Limited is expected to generate 0.76 times more return on investment than KAR Auction. However, Genpact Limited is 1.31 times less risky than KAR Auction. It trades about 0.17 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.12 per unit of risk. If you would invest  3,908  in Genpact Limited on August 30, 2024 and sell it today you would earn a total of  741.00  from holding Genpact Limited or generate 18.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Genpact Limited  vs.  KAR Auction Services

Genpact Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genpact Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Genpact reported solid returns over the last few months and may actually be approaching a breakup point.

KAR Auction Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 9 (%) 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 Genpact and KAR Auction

The main advantage of trading using opposite Genpact and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Genpact 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 Genpact Limited 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..