Correlation Between KAR Auction and Brunswick Corp

Can any of the company-specific risk be diversified away by investing in both KAR Auction and Brunswick Corp 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 Brunswick Corp 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 Brunswick Corp, you can compare the effects of market volatilities on KAR Auction and Brunswick Corp 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 Brunswick Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of KAR Auction and Brunswick Corp.

Diversification Opportunities for KAR Auction and Brunswick Corp

-0.75

Correlation Coefficient

KAR Auction  Brunswick Corp

Pay attention - limited upside

The 3 months correlation between KAR and Brunswick is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Brunswick Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brunswick Corp 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 Brunswick Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brunswick Corp has no effect on the direction of KAR Auction i.e., KAR Auction and Brunswick Corp go up and down completely randomly.

Pair Corralation between KAR Auction and Brunswick Corp

Considering the 90-day investment horizon KAR Auction Services is expected to generate 1.33 times more return on investment than Brunswick Corp. However, KAR Auction is 1.33 times more volatile than Brunswick Corp. It trades about 0.13 of its potential returns per unit of risk. Brunswick Corp is currently generating about -0.05 per unit of risk. If you would invest  1,995  in KAR Auction Services on September 27, 2024 and sell it today you would earn a total of  50.00  from holding KAR Auction Services or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

KAR Auction Services  vs.  Brunswick Corp

KAR Auction Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 12 (%) 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.

Brunswick Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brunswick Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Brunswick Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KAR Auction and Brunswick Corp

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

The idea behind KAR Auction Services and Brunswick Corp 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.