Correlation Between KAR Auction and Canoo Holdings

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

Diversification Opportunities for KAR Auction and Canoo Holdings

0.02

Correlation Coefficient

KAR Auction  Canoo Holdings

Significant diversification

The 3 months correlation between KAR and Canoo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Canoo Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoo 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 Canoo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoo Holdings has no effect on the direction of KAR Auction i.e., KAR Auction and Canoo Holdings go up and down completely randomly.

Pair Corralation between KAR Auction and Canoo Holdings

Considering the 90-day investment horizon KAR Auction Services is expected to generate 0.09 times more return on investment than Canoo Holdings. However, KAR Auction Services is 11.19 times less risky than Canoo Holdings. It trades about -0.02 of its potential returns per unit of risk. Canoo Holdings is currently generating about -0.22 per unit of risk. If you would invest  2,010  in KAR Auction Services on December 28, 2024 and sell it today you would lose (76.00) from holding KAR Auction Services or give up 3.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	33.33%
Values	Daily Returns

KAR Auction Services  vs.  Canoo Holdings

KAR Auction Services

Risk-Adjusted Performance

Very Weak

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.

Canoo Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canoo Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with KAR Auction and Canoo Holdings

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

The idea behind KAR Auction Services and Canoo 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.