Correlation Between First Advantage and KAR Auction
Can any of the company-specific risk be diversified away by investing in both First Advantage 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 First Advantage and KAR Auction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Advantage Corp and KAR Auction Services, you can compare the effects of market volatilities on First Advantage 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 First Advantage with a short position of KAR Auction. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Advantage and KAR Auction.
Diversification Opportunities for First Advantage and KAR Auction
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and KAR is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp 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 First Advantage 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 First Advantage Corp 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 First Advantage i.e., First Advantage and KAR Auction go up and down completely randomly.
Pair Corralation between First Advantage and KAR Auction
Allowing for the 90-day total investment horizon First Advantage is expected to generate 16.36 times less return on investment than KAR Auction. But when comparing it to its historical volatility, First Advantage Corp is 1.2 times less risky than KAR Auction. It trades about 0.03 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 1,584 in KAR Auction Services on August 24, 2024 and sell it today you would earn a total of 408.00 from holding KAR Auction Services or generate 25.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Advantage Corp vs. KAR Auction Services
Performance |
| Timeline |
| First Advantage Corp |
| KAR Auction Services |
First Advantage and KAR Auction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Advantage and KAR Auction
The main advantage of trading using opposite First Advantage and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Advantage 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.| First Advantage vs. Discount Print USA | First Advantage vs. Cass Information Systems | First Advantage vs. Civeo Corp | First Advantage vs. Network 1 Technologies |
| KAR Auction vs. CarGurus | KAR Auction vs. Kingsway Financial Services | KAR Auction vs. Driven Brands Holdings | KAR Auction vs. Group 1 Automotive |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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