Correlation Between Macys and Lithia Motors

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

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

Diversification Opportunities for Macys and Lithia Motors

0.45

Correlation Coefficient

Macys  Lithia Motors

Very weak diversification

The 3 months correlation between Macys and Lithia is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Macys 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 Macys Inc are associated (or correlated) with Lithia Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithia Motors has no effect on the direction of Macys i.e., Macys and Lithia Motors go up and down completely randomly.

Pair Corralation between Macys and Lithia Motors

Taking into account the 90-day investment horizon Macys Inc is expected to generate 1.81 times more return on investment than Lithia Motors. However, Macys is 1.81 times more volatile than Lithia Motors. It trades about 0.16 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.32 per unit of risk. If you would invest  1,577  in Macys Inc on September 26, 2024 and sell it today you would earn a total of  105.00  from holding Macys Inc or generate 6.66% return on investment over 90 days.

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

Macys Inc  vs.  Lithia Motors

Macys Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Macys displayed solid returns over the last few months and may actually be approaching a breakup point.

Lithia Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 9 (%) 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.

Pair Trading with Macys and Lithia Motors

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

The idea behind Macys Inc and Lithia Motors 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.