Correlation Between USS and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both USS 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 USS and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between USS Co and Lithia Motors, you can compare the effects of market volatilities on USS 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 USS with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of USS and Lithia Motors.
Diversification Opportunities for USS and Lithia Motors
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between USS and Lithia is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding USS Co and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and USS 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 USS Co 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 USS i.e., USS and Lithia Motors go up and down completely randomly.
Pair Corralation between USS and Lithia Motors
Assuming the 90 days horizon USS Co is expected to generate 0.91 times more return on investment than Lithia Motors. However, USS Co is 1.1 times less risky than Lithia Motors. It trades about -0.16 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.38 per unit of risk. If you would invest 860.00 in USS Co on September 24, 2024 and sell it today you would lose (25.00) from holding USS Co or give up 2.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
USS Co vs. Lithia Motors
Performance |
| Timeline |
| USS Co |
| Lithia Motors |
USS and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with USS and Lithia Motors
The main advantage of trading using opposite USS and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USS 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.The idea behind USS Co and Lithia Motors pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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