Correlation Between Lithia Motors and Advance Auto
Can any of the company-specific risk be diversified away by investing in both Lithia Motors and Advance Auto 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 Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithia Motors and Advance Auto Parts, you can compare the effects of market volatilities on Lithia Motors and Advance Auto 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 Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and Advance Auto.
Diversification Opportunities for Lithia Motors and Advance Auto
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lithia and Advance is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts 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 Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Lithia Motors i.e., Lithia Motors and Advance Auto go up and down completely randomly.
Pair Corralation between Lithia Motors and Advance Auto
Considering the 90-day investment horizon Lithia Motors is expected to generate 1.11 times less return on investment than Advance Auto. But when comparing it to its historical volatility, Lithia Motors is 1.98 times less risky than Advance Auto. It trades about 0.39 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,709 in Advance Auto Parts on August 28, 2024 and sell it today you would earn a total of 633.00 from holding Advance Auto Parts or generate 17.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lithia Motors vs. Advance Auto Parts
Performance |
| Timeline |
| Lithia Motors |
| Advance Auto Parts |
Lithia Motors and Advance Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithia Motors and Advance Auto
The main advantage of trading using opposite Lithia Motors and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithia Motors position performs unexpectedly, Advance Auto 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 Advance Auto will offset losses from the drop in Advance Auto's long position.| Lithia Motors vs. Kingsway Financial Services | Lithia Motors vs. KAR Auction Services | Lithia Motors vs. Cango Inc | Lithia Motors vs. Vroom Inc |
| Advance Auto vs. AutoZone | Advance Auto vs. Tractor Supply | Advance Auto vs. Genuine Parts Co | Advance Auto vs. Five Below |
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.
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