Correlation Between Lithia Motors and First Advantage
Can any of the company-specific risk be diversified away by investing in both Lithia Motors and First Advantage 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 First Advantage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithia Motors and First Advantage Corp, you can compare the effects of market volatilities on Lithia Motors and First Advantage 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 First Advantage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and First Advantage.
Diversification Opportunities for Lithia Motors and First Advantage
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lithia and First is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and First Advantage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Advantage Corp 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 First Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Advantage Corp has no effect on the direction of Lithia Motors i.e., Lithia Motors and First Advantage go up and down completely randomly.
Pair Corralation between Lithia Motors and First Advantage
Considering the 90-day investment horizon Lithia Motors is expected to generate 0.75 times more return on investment than First Advantage. However, Lithia Motors is 1.34 times less risky than First Advantage. It trades about 0.4 of its potential returns per unit of risk. First Advantage Corp is currently generating about 0.13 per unit of risk. If you would invest 33,189 in Lithia Motors on September 1, 2024 and sell it today you would earn a total of 5,501 from holding Lithia Motors or generate 16.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lithia Motors vs. First Advantage Corp
Performance |
| Timeline |
| Lithia Motors |
| First Advantage Corp |
Lithia Motors and First Advantage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithia Motors and First Advantage
The main advantage of trading using opposite Lithia Motors and First Advantage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithia Motors position performs unexpectedly, First Advantage 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 First Advantage will offset losses from the drop in First Advantage's long position.| Lithia Motors vs. Sonic Automotive | Lithia Motors vs. AutoNation | Lithia Motors vs. Asbury Automotive Group | Lithia Motors vs. Penske Automotive Group |
| First Advantage vs. Discount Print USA | First Advantage vs. Cass Information Systems | First Advantage vs. Civeo Corp | First Advantage vs. Network 1 Technologies |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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