Correlation Between KAR Auction and ACV Auctions

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

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

Diversification Opportunities for KAR Auction and ACV Auctions

0.73

Correlation Coefficient

KAR Auction  ACV Auctions

Poor diversification

The 3 months correlation between KAR and ACV is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and ACV Auctions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACV Auctions and KAR Auction 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 KAR Auction Services 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 KAR Auction i.e., KAR Auction and ACV Auctions go up and down completely randomly.

Pair Corralation between KAR Auction and ACV Auctions

Considering the 90-day investment horizon KAR Auction is expected to generate 1.36 times less return on investment than ACV Auctions. But when comparing it to its historical volatility, KAR Auction Services is 1.06 times less risky than ACV Auctions. It trades about 0.12 of its potential returns per unit of risk. ACV Auctions is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,815  in ACV Auctions on September 3, 2024 and sell it today you would earn a total of  447.00  from holding ACV Auctions or generate 24.63% return on investment over 90 days.

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

KAR Auction Services  vs.  ACV Auctions

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.

ACV Auctions

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ACV Auctions are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, ACV Auctions sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAR Auction and ACV Auctions

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

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.