Correlation Between KAR Auction and Lands End

Can any of the company-specific risk be diversified away by investing in both KAR Auction and Lands End 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 Lands End 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 Lands End, you can compare the effects of market volatilities on KAR Auction and Lands End 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 Lands End. Check out your portfolio center. Please also check ongoing floating volatility patterns of KAR Auction and Lands End.

Diversification Opportunities for KAR Auction and Lands End

0.62

Correlation Coefficient

KAR Auction  Lands End

Poor diversification

The 3 months correlation between KAR and Lands is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding KAR Auction Services and Lands End in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lands End 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 Lands End. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lands End has no effect on the direction of KAR Auction i.e., KAR Auction and Lands End go up and down completely randomly.

Pair Corralation between KAR Auction and Lands End

Considering the 90-day investment horizon KAR Auction is expected to generate 18.08 times less return on investment than Lands End. But when comparing it to its historical volatility, KAR Auction Services is 4.01 times less risky than Lands End. It trades about 0.11 of its potential returns per unit of risk. Lands End is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  815.00  in Lands End on January 20, 2024 and sell it today you would earn a total of  475.00  from holding Lands End or generate 58.28% return on investment over 90 days.

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

KAR Auction Services  vs.  Lands End

KAR Auction Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Lands End

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lands End are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Lands End exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAR Auction and Lands End

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

The idea behind KAR Auction Services and Lands End 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.