Correlation Between Gladstone Investment and Lithia Motors

Can any of the company-specific risk be diversified away by investing in both Gladstone Investment 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 Gladstone Investment and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gladstone Investment and Lithia Motors, you can compare the effects of market volatilities on Gladstone Investment 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 Gladstone Investment with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gladstone Investment and Lithia Motors.

Diversification Opportunities for Gladstone Investment and Lithia Motors

0.61

Correlation Coefficient

Gladstone Investment  Lithia Motors

Poor diversification

The 3 months correlation between Gladstone and Lithia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Gladstone Investment and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Gladstone Investment 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 Gladstone Investment 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 Gladstone Investment i.e., Gladstone Investment and Lithia Motors go up and down completely randomly.

Pair Corralation between Gladstone Investment and Lithia Motors

Assuming the 90 days horizon Gladstone Investment is expected to generate 0.66 times more return on investment than Lithia Motors. However, Gladstone Investment is 1.53 times less risky than Lithia Motors. It trades about 0.01 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.1 per unit of risk. If you would invest  1,240  in Gladstone Investment on December 27, 2024 and sell it today you would earn a total of  4.00  from holding Gladstone Investment or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Gladstone Investment  vs.  Lithia Motors

Gladstone Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gladstone Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Gladstone Investment is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lithia Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithia Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Gladstone Investment and Lithia Motors

The main advantage of trading using opposite Gladstone Investment and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gladstone Investment 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 Gladstone Investment 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.