Correlation Between Liquidity Services and CarGurus

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

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

Diversification Opportunities for Liquidity Services and CarGurus

0.72

Correlation Coefficient

Liquidity Services  CarGurus

Poor diversification

The 3 months correlation between Liquidity and CarGurus is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Liquidity Services and CarGurus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarGurus and Liquidity Services 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 Liquidity Services are associated (or correlated) with CarGurus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarGurus has no effect on the direction of Liquidity Services i.e., Liquidity Services and CarGurus go up and down completely randomly.

Pair Corralation between Liquidity Services and CarGurus

Given the investment horizon of 90 days Liquidity Services is expected to generate 4.82 times more return on investment than CarGurus. However, Liquidity Services is 4.82 times more volatile than CarGurus. It trades about 0.17 of its potential returns per unit of risk. CarGurus is currently generating about -0.12 per unit of risk. If you would invest  2,587  in Liquidity Services on October 1, 2024 and sell it today you would earn a total of  620.00  from holding Liquidity Services or generate 23.97% return on investment over 90 days.

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

Liquidity Services  vs.  CarGurus

Liquidity Services

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liquidity Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Liquidity Services unveiled solid returns over the last few months and may actually be approaching a breakup point.

CarGurus

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CarGurus are ranked lower than 16 (%) 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.

Pair Trading with Liquidity Services and CarGurus

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

The idea behind Liquidity Services and CarGurus 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.