Correlation Between Lithia Motors and Group 1

Can any of the company-specific risk be diversified away by investing in both Lithia Motors and Group 1 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 Lithia Motors and Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lithia Motors and Group 1 Automotive, you can compare the effects of market volatilities on Lithia Motors and Group 1 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 Lithia Motors with a short position of Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and Group 1.

Diversification Opportunities for Lithia Motors and Group 1

0.78

Correlation Coefficient

Lithia Motors  Group 1

Poor diversification

The 3 months correlation between Lithia and Group is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive and Lithia Motors 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 Lithia Motors are associated (or correlated) with Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of Lithia Motors i.e., Lithia Motors and Group 1 go up and down completely randomly.

Pair Corralation between Lithia Motors and Group 1

Considering the 90-day investment horizon Lithia Motors is expected to generate 1.28 times less return on investment than Group 1. In addition to that, Lithia Motors is 1.17 times more volatile than Group 1 Automotive. It trades about 0.06 of its total potential returns per unit of risk. Group 1 Automotive is currently generating about 0.09 per unit of volatility. If you would invest  18,793  in Group 1 Automotive on August 30, 2024 and sell it today you would earn a total of  23,983  from holding Group 1 Automotive or generate 127.62% return on investment over 90 days.

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

Lithia Motors  vs.  Group 1 Automotive

Lithia Motors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Lithia Motors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Group 1 Automotive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and Group 1

The main advantage of trading using opposite Lithia Motors and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithia Motors position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind Lithia Motors and Group 1 Automotive 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.