Correlation Between CarGurus and KAR Auction

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

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

Diversification Opportunities for CarGurus and KAR Auction

0.94

Correlation Coefficient

CarGurus  KAR Auction

Almost no diversification

The 3 months correlation between CarGurus and KAR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding CarGurus 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 CarGurus 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 CarGurus 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 CarGurus i.e., CarGurus and KAR Auction go up and down completely randomly.

Pair Corralation between CarGurus and KAR Auction

Given the investment horizon of 90 days CarGurus is expected to generate 1.64 times more return on investment than KAR Auction. However, CarGurus is 1.64 times more volatile than KAR Auction Services. It trades about 0.02 of its potential returns per unit of risk. KAR Auction Services is currently generating about -0.03 per unit of risk. If you would invest  3,583  in CarGurus on September 24, 2024 and sell it today you would earn a total of  13.00  from holding CarGurus or generate 0.36% return on investment over 90 days.

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

CarGurus  vs.  KAR Auction Services

CarGurus

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarGurus are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, CarGurus reported solid returns over the last few months and may actually be approaching a breakup point.

KAR Auction Services

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 11 (%) 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 CarGurus and KAR Auction

The main advantage of trading using opposite CarGurus and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CarGurus 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 CarGurus 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.