Correlation Between AutoNation and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both AutoNation 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 AutoNation and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AutoNation and Lithia Motors, you can compare the effects of market volatilities on AutoNation 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 AutoNation with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Lithia Motors.
Diversification Opportunities for AutoNation and Lithia Motors
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AutoNation and Lithia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and AutoNation 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 AutoNation 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 AutoNation i.e., AutoNation and Lithia Motors go up and down completely randomly.
Pair Corralation between AutoNation and Lithia Motors
Assuming the 90 days horizon AutoNation is expected to generate 1.49 times more return on investment than Lithia Motors. However, AutoNation is 1.49 times more volatile than Lithia Motors. It trades about -0.03 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.38 per unit of risk. If you would invest 16,415 in AutoNation on September 24, 2024 and sell it today you would lose (185.00) from holding AutoNation or give up 1.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AutoNation vs. Lithia Motors
Performance |
| Timeline |
| AutoNation |
| Lithia Motors |
AutoNation and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AutoNation and Lithia Motors
The main advantage of trading using opposite AutoNation and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation 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.| AutoNation vs. Copart Inc | AutoNation vs. Zhongsheng Group Holdings | AutoNation vs. CarMax Inc | AutoNation vs. DIeteren Group SA |
| Lithia Motors vs. Copart Inc | Lithia Motors vs. Zhongsheng Group Holdings | Lithia Motors vs. CarMax Inc | Lithia Motors vs. DIeteren Group SA |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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