Correlation Between Rush Enterprises and KAR Auction

Can any of the company-specific risk be diversified away by investing in both Rush Enterprises and KAR Auction 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 Rush Enterprises and KAR Auction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rush Enterprises B and KAR Auction Services, you can compare the effects of market volatilities on Rush Enterprises and KAR Auction 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 Rush Enterprises with a short position of KAR Auction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rush Enterprises and KAR Auction.

Diversification Opportunities for Rush Enterprises and KAR Auction

0.87

Correlation Coefficient

Rush Enterprises  KAR Auction

Very poor diversification

The 3 months correlation between Rush and KAR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Rush Enterprises B and KAR Auction Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAR Auction Services and Rush Enterprises 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 Rush Enterprises B are associated (or correlated) with KAR Auction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAR Auction Services has no effect on the direction of Rush Enterprises i.e., Rush Enterprises and KAR Auction go up and down completely randomly.

Pair Corralation between Rush Enterprises and KAR Auction

Assuming the 90 days horizon Rush Enterprises B is expected to generate 1.12 times more return on investment than KAR Auction. However, Rush Enterprises is 1.12 times more volatile than KAR Auction Services. It trades about 0.15 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.12 per unit of risk. If you would invest  4,566  in Rush Enterprises B on August 31, 2024 and sell it today you would earn a total of  1,101  from holding Rush Enterprises B or generate 24.11% return on investment over 90 days.

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

Rush Enterprises B  vs.  KAR Auction Services

Rush Enterprises B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rush Enterprises B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical indicators, Rush Enterprises sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Rush Enterprises and KAR Auction

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

The idea behind Rush Enterprises B and KAR Auction Services 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.