Correlation Between Genuine Parts and KAR Auction

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

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

Diversification Opportunities for Genuine Parts and KAR Auction

0.74

Correlation Coefficient

Genuine Parts  KAR Auction

Poor diversification

The 3 months correlation between Genuine and KAR is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Genuine Parts Co 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 Genuine Parts 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 Genuine Parts Co 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 Genuine Parts i.e., Genuine Parts and KAR Auction go up and down completely randomly.

Pair Corralation between Genuine Parts and KAR Auction

Considering the 90-day investment horizon Genuine Parts Co is expected to generate 0.66 times more return on investment than KAR Auction. However, Genuine Parts Co is 1.52 times less risky than KAR Auction. It trades about 0.04 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.03 per unit of risk. If you would invest  12,404  in Genuine Parts Co on January 25, 2024 and sell it today you would earn a total of  3,934  from holding Genuine Parts Co or generate 31.72% return on investment over 90 days.

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

Genuine Parts Co  vs.  KAR Auction Services

Genuine Parts

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Genuine Parts exhibited solid returns over the last few months and may actually be approaching a breakup point.

KAR Auction Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Genuine Parts and KAR Auction

The main advantage of trading using opposite Genuine Parts and KAR Auction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Genuine Parts 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 Genuine Parts Co 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.