Correlation Between Lamar Advertising and AUTO TRADER

Can any of the company-specific risk be diversified away by investing in both Lamar Advertising and AUTO TRADER 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 Lamar Advertising and AUTO TRADER into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lamar Advertising and AUTO TRADER ADR, you can compare the effects of market volatilities on Lamar Advertising and AUTO TRADER 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 Lamar Advertising with a short position of AUTO TRADER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lamar Advertising and AUTO TRADER.

Diversification Opportunities for Lamar Advertising and AUTO TRADER

0.49

Correlation Coefficient

Lamar Advertising  AUTO TRADER

Very weak diversification

The 3 months correlation between Lamar and AUTO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lamar Advertising and AUTO TRADER ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTO TRADER ADR and Lamar Advertising 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 Lamar Advertising are associated (or correlated) with AUTO TRADER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTO TRADER ADR has no effect on the direction of Lamar Advertising i.e., Lamar Advertising and AUTO TRADER go up and down completely randomly.

Pair Corralation between Lamar Advertising and AUTO TRADER

Assuming the 90 days trading horizon Lamar Advertising is expected to generate 1.25 times less return on investment than AUTO TRADER. But when comparing it to its historical volatility, Lamar Advertising is 1.02 times less risky than AUTO TRADER. It trades about 0.05 of its potential returns per unit of risk. AUTO TRADER ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  151.00  in AUTO TRADER ADR on October 11, 2024 and sell it today you would earn a total of  83.00  from holding AUTO TRADER ADR or generate 54.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Lamar Advertising  vs.  AUTO TRADER ADR

Lamar Advertising

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lamar Advertising is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lamar Advertising and AUTO TRADER

The main advantage of trading using opposite Lamar Advertising and AUTO TRADER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lamar Advertising position performs unexpectedly, AUTO TRADER 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 AUTO TRADER will offset losses from the drop in AUTO TRADER's long position.

The idea behind Lamar Advertising and AUTO TRADER ADR 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.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.