Correlation Between Lithia Motors and El Pollo
Can any of the company-specific risk be diversified away by investing in both Lithia Motors and El Pollo 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 El Pollo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithia Motors and El Pollo Loco, you can compare the effects of market volatilities on Lithia Motors and El Pollo 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 El Pollo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithia Motors and El Pollo.
Diversification Opportunities for Lithia Motors and El Pollo
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Lithia and LOCO is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco 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 El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Lithia Motors i.e., Lithia Motors and El Pollo go up and down completely randomly.
Pair Corralation between Lithia Motors and El Pollo
Considering the 90-day investment horizon Lithia Motors is expected to generate 1.18 times more return on investment than El Pollo. However, Lithia Motors is 1.18 times more volatile than El Pollo Loco. It trades about 0.06 of its potential returns per unit of risk. El Pollo Loco is currently generating about 0.03 per unit of risk. If you would invest 21,596 in Lithia Motors on August 30, 2024 and sell it today you would earn a total of 17,020 from holding Lithia Motors or generate 78.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lithia Motors vs. El Pollo Loco
Performance |
| Timeline |
| Lithia Motors |
| El Pollo Loco |
Lithia Motors and El Pollo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithia Motors and El Pollo
The main advantage of trading using opposite Lithia Motors and El Pollo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithia Motors position performs unexpectedly, El Pollo 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 El Pollo will offset losses from the drop in El Pollo'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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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