Correlation Between KAR Auction and Penske Automotive

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

Diversification Opportunities for KAR Auction and Penske Automotive

0.45

Correlation Coefficient

KAR Auction  Penske Automotive

Very weak diversification

The 3 months correlation between KAR and Penske is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske 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 Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of KAR Auction i.e., KAR Auction and Penske Automotive go up and down completely randomly.

Pair Corralation between KAR Auction and Penske Automotive

Considering the 90-day investment horizon KAR Auction Services is expected to generate 0.98 times more return on investment than Penske Automotive. However, KAR Auction Services is 1.02 times less risky than Penske Automotive. It trades about 0.05 of its potential returns per unit of risk. Penske Automotive Group is currently generating about -0.01 per unit of risk. If you would invest  2,012  in KAR Auction Services on December 27, 2024 and sell it today you would earn a total of  87.00  from holding KAR Auction Services or generate 4.32% return on investment over 90 days.

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

KAR Auction Services  vs.  Penske Automotive Group

KAR Auction Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 3 (%) 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.

Penske Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penske Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Penske Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KAR Auction and Penske Automotive

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

The idea behind KAR Auction Services and Penske Automotive Group 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 Global Correlations module to find global opportunities by holding instruments from different markets.