Correlation Between NYSE Composite and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Lithia Motors, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Lithia Motors.
Diversification Opportunities for NYSE Composite and Lithia Motors
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NYSE and Lithia is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Lithia Motors go up and down completely randomly.
Pair Corralation between NYSE Composite and Lithia Motors
Assuming the 90 days trading horizon NYSE Composite is expected to generate 4.56 times less return on investment than Lithia Motors. But when comparing it to its historical volatility, NYSE Composite is 2.83 times less risky than Lithia Motors. It trades about 0.24 of its potential returns per unit of risk. Lithia Motors is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 33,876 in Lithia Motors on August 28, 2024 and sell it today you would earn a total of 5,551 from holding Lithia Motors or generate 16.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NYSE Composite vs. Lithia Motors
Performance |
| Timeline |
NYSE Composite and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
Lithia Motors
Pair trading matchups for Lithia Motors
Pair Trading with NYSE Composite and Lithia Motors
The main advantage of trading using opposite NYSE Composite and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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.| NYSE Composite vs. Hooker Furniture | NYSE Composite vs. Hudson Pacific Properties | NYSE Composite vs. Canlan Ice Sports | NYSE Composite vs. Boston Properties |
| Lithia Motors vs. Kingsway Financial Services | Lithia Motors vs. KAR Auction Services | Lithia Motors vs. Cango Inc | Lithia Motors vs. Vroom Inc |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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