Correlation Between Wayfair and KAR Auction
Can any of the company-specific risk be diversified away by investing in both Wayfair 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 Wayfair and KAR Auction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and KAR Auction Services, you can compare the effects of market volatilities on Wayfair 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 Wayfair with a short position of KAR Auction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and KAR Auction.
Diversification Opportunities for Wayfair and KAR Auction
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Wayfair and KAR is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair 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 Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and KAR Auction go up and down completely randomly.
Pair Corralation between Wayfair and KAR Auction
Taking into account the 90-day investment horizon Wayfair is expected to under-perform the KAR Auction. In addition to that, Wayfair is 2.31 times more volatile than KAR Auction Services. It trades about -0.01 of its total potential returns per unit of risk. KAR Auction Services is currently generating about 0.07 per unit of volatility. If you would invest 1,492 in KAR Auction Services on August 24, 2024 and sell it today you would earn a total of 500.00 from holding KAR Auction Services or generate 33.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. KAR Auction Services
Performance |
| Timeline |
| Wayfair |
| KAR Auction Services |
Wayfair and KAR Auction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and KAR Auction
The main advantage of trading using opposite Wayfair and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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 Wayfair 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.| 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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