Correlation Between Lamar Advertising and Lithia Motors

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

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

Diversification Opportunities for Lamar Advertising and Lithia Motors

0.24

Correlation Coefficient

Lamar Advertising  Lithia Motors

Modest diversification

The 3 months correlation between Lamar and Lithia is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Lamar Advertising and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors 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 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 Lamar Advertising i.e., Lamar Advertising and Lithia Motors go up and down completely randomly.

Pair Corralation between Lamar Advertising and Lithia Motors

Assuming the 90 days trading horizon Lamar Advertising is not expected to generate positive returns. However, Lamar Advertising is 1.52 times less risky than Lithia Motors. It waists most of its returns potential to compensate for thr risk taken. Lithia Motors is generating about 0.15 per unit of risk. If you would invest  28,556  in Lithia Motors on September 29, 2024 and sell it today you would earn a total of  6,044  from holding Lithia Motors or generate 21.17% return on investment over 90 days.

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

Lamar Advertising  vs.  Lithia Motors

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lithia Motors

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lithia Motors reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lamar Advertising and Lithia Motors

The main advantage of trading using opposite Lamar Advertising and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lamar Advertising 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 Lamar Advertising 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.