Correlation Between KAR Auction and Driven Brands

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

Diversification Opportunities for KAR Auction and Driven Brands

0.43

Correlation Coefficient

KAR Auction  Driven Brands

Very weak diversification

The 3 months correlation between KAR and Driven is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Driven Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Driven Brands Holdings 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 Driven Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Driven Brands Holdings has no effect on the direction of KAR Auction i.e., KAR Auction and Driven Brands go up and down completely randomly.

Pair Corralation between KAR Auction and Driven Brands

Considering the 90-day investment horizon KAR Auction Services is expected to under-perform the Driven Brands. In addition to that, KAR Auction is 1.04 times more volatile than Driven Brands Holdings. It trades about -0.02 of its total potential returns per unit of risk. Driven Brands Holdings is currently generating about 0.07 per unit of volatility. If you would invest  1,622  in Driven Brands Holdings on December 27, 2024 and sell it today you would earn a total of  116.00  from holding Driven Brands Holdings or generate 7.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

KAR Auction Services  vs.  Driven Brands Holdings

KAR Auction Services

Risk-Adjusted Performance

Insignificant

Over the last 90 days KAR Auction Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, KAR Auction is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Driven Brands Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with KAR Auction and Driven Brands

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

The idea behind KAR Auction Services and Driven Brands Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.