Correlation Between KAR Auction and Fuel Tech

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

Diversification Opportunities for KAR Auction and Fuel Tech

0.86

Correlation Coefficient

KAR Auction  Fuel Tech

Very poor diversification

The 3 months correlation between KAR and Fuel is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Fuel Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuel Tech 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 Fuel Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuel Tech has no effect on the direction of KAR Auction i.e., KAR Auction and Fuel Tech go up and down completely randomly.

Pair Corralation between KAR Auction and Fuel Tech

Considering the 90-day investment horizon KAR Auction is expected to generate 4.83 times less return on investment than Fuel Tech. But when comparing it to its historical volatility, KAR Auction Services is 3.14 times less risky than Fuel Tech. It trades about 0.18 of its potential returns per unit of risk. Fuel Tech is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  94.00  in Fuel Tech on May 6, 2025 and sell it today you would earn a total of  163.00  from holding Fuel Tech or generate 173.4% 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.  Fuel Tech

KAR Auction Services

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Fuel Tech

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fuel Tech are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent technical and fundamental indicators, Fuel Tech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAR Auction and Fuel Tech

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

The idea behind KAR Auction Services and Fuel Tech 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.