Correlation Between Lithia Motors and Macys

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

By analyzing existing cross correlation between Lithia Motors and Macys Inc, you can compare the effects of market volatilities on Lithia Motors and Macys 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 Macys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and Macys.

Diversification Opportunities for Lithia Motors and Macys

0.46

Correlation Coefficient

Lithia Motors  Macys

Very weak diversification

The 3 months correlation between Lithia and Macys is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Macys Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macys Inc 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 Macys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macys Inc has no effect on the direction of Lithia Motors i.e., Lithia Motors and Macys go up and down completely randomly.

Pair Corralation between Lithia Motors and Macys

Considering the 90-day investment horizon Lithia Motors is expected to under-perform the Macys. But the stock apears to be less risky and, when comparing its historical volatility, Lithia Motors is 1.81 times less risky than Macys. The stock trades about -0.32 of its potential returns per unit of risk. The Macys Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,577  in Macys Inc on September 25, 2024 and sell it today you would earn a total of  91.50  from holding Macys Inc or generate 5.8% return on investment over 90 days.

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

Lithia Motors  vs.  Macys Inc

Lithia Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Lithia Motors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Macys Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Macys displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and Macys

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

The idea behind Lithia Motors and Macys Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.