Correlation Between KAR Auction and Consumer Automotive

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

Diversification Opportunities for KAR Auction and Consumer Automotive

-0.07

Correlation Coefficient

KAR Auction  Consumer Automotive

Good diversification

The 3 months correlation between KAR and Consumer is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Consumer Automotive Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Automotive 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 Consumer Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Automotive has no effect on the direction of KAR Auction i.e., KAR Auction and Consumer Automotive go up and down completely randomly.

Pair Corralation between KAR Auction and Consumer Automotive

If you would invest  2,045  in KAR Auction Services on December 25, 2024 and sell it today you would earn a total of  62.00  from holding KAR Auction Services or generate 3.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

KAR Auction Services  vs.  Consumer Automotive Finance

KAR Auction Services

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Consumer Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Automotive Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Consumer Automotive is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with KAR Auction and Consumer Automotive

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

The idea behind KAR Auction Services and Consumer Automotive Finance 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.