Correlation Between Cardinal Health and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both Cardinal Health 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 Cardinal Health and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cardinal Health and Lithia Motors, you can compare the effects of market volatilities on Cardinal Health 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 Cardinal Health with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cardinal Health and Lithia Motors.
Diversification Opportunities for Cardinal Health and Lithia Motors
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cardinal and Lithia is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Cardinal Health 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 Cardinal Health 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 Cardinal Health i.e., Cardinal Health and Lithia Motors go up and down completely randomly.
Pair Corralation between Cardinal Health and Lithia Motors
Assuming the 90 days horizon Cardinal Health is expected to generate 2.21 times less return on investment than Lithia Motors. But when comparing it to its historical volatility, Cardinal Health is 1.52 times less risky than Lithia Motors. It trades about 0.05 of its potential returns per unit of risk. Lithia Motors is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 24,809 in Lithia Motors on September 4, 2024 and sell it today you would earn a total of 11,991 from holding Lithia Motors or generate 48.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cardinal Health vs. Lithia Motors
Performance |
| Timeline |
| Cardinal Health |
| Lithia Motors |
Cardinal Health and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cardinal Health and Lithia Motors
The main advantage of trading using opposite Cardinal Health and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardinal Health 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.| Cardinal Health vs. Superior Plus Corp | Cardinal Health vs. NMI Holdings | Cardinal Health vs. Origin Agritech | Cardinal Health vs. SIVERS SEMICONDUCTORS AB |
| Lithia Motors vs. Chongqing Machinery Electric | Lithia Motors vs. EPSILON HEALTHCARE LTD | Lithia Motors vs. Harmony Gold Mining | Lithia Motors vs. Cardinal Health |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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