Correlation Between ACV Auctions and KAR Auction

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

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

Diversification Opportunities for ACV Auctions and KAR Auction

0.8

Correlation Coefficient

ACV Auctions  KAR Auction

Very poor diversification

The 3 months correlation between ACV and KAR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ACV Auctions 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 ACV Auctions 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 ACV Auctions 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 ACV Auctions i.e., ACV Auctions and KAR Auction go up and down completely randomly.

Pair Corralation between ACV Auctions and KAR Auction

Given the investment horizon of 90 days ACV Auctions is expected to generate 1.8 times more return on investment than KAR Auction. However, ACV Auctions is 1.8 times more volatile than KAR Auction Services. It trades about 0.05 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.08 per unit of risk. If you would invest  1,561  in ACV Auctions on September 14, 2024 and sell it today you would earn a total of  469.00  from holding ACV Auctions or generate 30.04% return on investment over 90 days.

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

ACV Auctions  vs.  KAR Auction Services

ACV Auctions

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ACV Auctions are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ACV Auctions is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KAR Auction Services

Risk-Adjusted Performance

13 of 100

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 fragile basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ACV Auctions and KAR Auction

The main advantage of trading using opposite ACV Auctions and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACV Auctions 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 ACV Auctions 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.