Correlation Between KAR Auction and Carvana
Can any of the company-specific risk be diversified away by investing in both KAR Auction and Carvana 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 Carvana 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 Carvana Co, you can compare the effects of market volatilities on KAR Auction and Carvana 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 Carvana. Check out your portfolio center. Please also check ongoing floating volatility patterns of KAR Auction and Carvana.
Diversification Opportunities for KAR Auction and Carvana
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between KAR and Carvana is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana 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 Carvana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana has no effect on the direction of KAR Auction i.e., KAR Auction and Carvana go up and down completely randomly.
Pair Corralation between KAR Auction and Carvana
Considering the 90-day investment horizon KAR Auction is expected to generate 1.21 times less return on investment than Carvana. But when comparing it to its historical volatility, KAR Auction Services is 1.54 times less risky than Carvana. It trades about 0.33 of its potential returns per unit of risk. Carvana Co is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 20,502 in Carvana Co on August 27, 2024 and sell it today you would earn a total of 5,578 from holding Carvana Co or generate 27.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KAR Auction Services vs. Carvana Co
Performance |
| Timeline |
| KAR Auction Services |
| Carvana |
KAR Auction and Carvana Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KAR Auction and Carvana
The main advantage of trading using opposite KAR Auction and Carvana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KAR Auction position performs unexpectedly, Carvana 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 Carvana will offset losses from the drop in Carvana's long position.| KAR Auction vs. Bassett Furniture Industries | KAR Auction vs. Hooker Furniture | KAR Auction vs. Natuzzi SpA | KAR Auction vs. Flexsteel Industries |
| Carvana vs. CarMax Inc | Carvana vs. U Power Limited | Carvana vs. SunCar Technology Group | Carvana vs. Jiuzi Holdings |
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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