Correlation Between Lithia Motors and Cazoo
Can any of the company-specific risk be diversified away by investing in both Lithia Motors and Cazoo 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 Cazoo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithia Motors and Cazoo Group, you can compare the effects of market volatilities on Lithia Motors and Cazoo 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 Cazoo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and Cazoo.
Diversification Opportunities for Lithia Motors and Cazoo
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Lithia and Cazoo is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Cazoo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cazoo Group 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 Cazoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cazoo Group has no effect on the direction of Lithia Motors i.e., Lithia Motors and Cazoo go up and down completely randomly.
Pair Corralation between Lithia Motors and Cazoo
Considering the 90-day investment horizon Lithia Motors is expected to generate 42.76 times less return on investment than Cazoo. But when comparing it to its historical volatility, Lithia Motors is 32.64 times less risky than Cazoo. It trades about 0.06 of its potential returns per unit of risk. Cazoo Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 14,900 in Cazoo Group on August 31, 2024 and sell it today you would lose (14,899) from holding Cazoo Group or give up 99.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 75.67% |
| Values | Daily Returns |
Lithia Motors vs. Cazoo Group
Performance |
| Timeline |
| Lithia Motors |
| Cazoo Group |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Lithia Motors and Cazoo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithia Motors and Cazoo
The main advantage of trading using opposite Lithia Motors and Cazoo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithia Motors position performs unexpectedly, Cazoo 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 Cazoo will offset losses from the drop in Cazoo's long position.| Lithia Motors vs. Sonic Automotive | Lithia Motors vs. AutoNation | Lithia Motors vs. Asbury Automotive Group | Lithia Motors vs. Penske Automotive Group |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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