Correlation Between KAR Auction and Rush Enterprises

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

Diversification Opportunities for KAR Auction and Rush Enterprises

0.81

Correlation Coefficient

KAR Auction  Rush Enterprises

Very poor diversification

The 3 months correlation between KAR and Rush is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Rush Enterprises A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rush Enterprises A 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 Rush Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rush Enterprises A has no effect on the direction of KAR Auction i.e., KAR Auction and Rush Enterprises go up and down completely randomly.

Pair Corralation between KAR Auction and Rush Enterprises

Considering the 90-day investment horizon KAR Auction is expected to generate 1.32 times less return on investment than Rush Enterprises. In addition to that, KAR Auction is 1.04 times more volatile than Rush Enterprises A. It trades about 0.12 of its total potential returns per unit of risk. Rush Enterprises A is currently generating about 0.17 per unit of volatility. If you would invest  4,983  in Rush Enterprises A on August 31, 2024 and sell it today you would earn a total of  1,167  from holding Rush Enterprises A or generate 23.42% return on investment over 90 days.

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

KAR Auction Services  vs.  Rush Enterprises A

KAR Auction Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 9 (%) 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.

Rush Enterprises A

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rush Enterprises A are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical indicators, Rush Enterprises sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAR Auction and Rush Enterprises

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

The idea behind KAR Auction Services and Rush Enterprises A 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.