Correlation Between D’Ieteren and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both D’Ieteren 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 D’Ieteren and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DIeteren NV ADR and Lithia Motors, you can compare the effects of market volatilities on D’Ieteren 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 D’Ieteren with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of D’Ieteren and Lithia Motors.
Diversification Opportunities for D’Ieteren and Lithia Motors
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between D’Ieteren and Lithia is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding DIeteren NV ADR and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and D’Ieteren 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 DIeteren NV ADR 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 D’Ieteren i.e., D’Ieteren and Lithia Motors go up and down completely randomly.
Pair Corralation between D’Ieteren and Lithia Motors
Assuming the 90 days horizon DIeteren NV ADR is expected to under-perform the Lithia Motors. In addition to that, D’Ieteren is 3.63 times more volatile than Lithia Motors. It trades about -0.3 of its total potential returns per unit of risk. Lithia Motors is currently generating about -0.12 per unit of volatility. If you would invest 36,021 in Lithia Motors on October 24, 2024 and sell it today you would lose (1,246) from holding Lithia Motors or give up 3.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 94.74% |
| Values | Daily Returns |
DIeteren NV ADR vs. Lithia Motors
Performance |
| Timeline |
| DIeteren NV ADR |
| Lithia Motors |
D’Ieteren and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with D’Ieteren and Lithia Motors
The main advantage of trading using opposite D’Ieteren and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if D’Ieteren 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.| D’Ieteren vs. Copart Inc | D’Ieteren vs. Zhongsheng Group Holdings | D’Ieteren vs. Zhongsheng Group Holdings | D’Ieteren vs. CarMax Inc |
| 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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