Correlation Between ABM Industries and KAR Auction

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

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

Diversification Opportunities for ABM Industries and KAR Auction

0.74

Correlation Coefficient

ABM Industries  KAR Auction

Poor diversification

The 3 months correlation between ABM and KAR is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ABM Industries Incorporated 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 ABM Industries 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 ABM Industries Incorporated 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 ABM Industries i.e., ABM Industries and KAR Auction go up and down completely randomly.

Pair Corralation between ABM Industries and KAR Auction

Considering the 90-day investment horizon ABM Industries is expected to generate 4.07 times less return on investment than KAR Auction. But when comparing it to its historical volatility, ABM Industries Incorporated is 1.19 times less risky than KAR Auction. It trades about 0.04 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,690  in KAR Auction Services on September 4, 2024 and sell it today you would earn a total of  318.00  from holding KAR Auction Services or generate 18.82% return on investment over 90 days.

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

ABM Industries Incorporated  vs.  KAR Auction Services

ABM Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ABM Industries Incorporated are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

KAR Auction Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 10 (%) 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 ABM Industries and KAR Auction

The main advantage of trading using opposite ABM Industries and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABM Industries 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 ABM Industries Incorporated 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.