Correlation Between Xtrackers ShortDAX and Lithia Motors

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

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

Diversification Opportunities for Xtrackers ShortDAX and Lithia Motors

-0.51

Correlation Coefficient

Xtrackers ShortDAX  Lithia Motors

Excellent diversification

The 3 months correlation between Xtrackers and Lithia is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Xtrackers ShortDAX 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 Xtrackers ShortDAX 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 Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Lithia Motors go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and Lithia Motors

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to under-perform the Lithia Motors. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers ShortDAX is 1.15 times less risky than Lithia Motors. The etf trades about -0.51 of its potential returns per unit of risk. The Lithia Motors is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  34,800  in Lithia Motors on September 14, 2024 and sell it today you would earn a total of  800.00  from holding Lithia Motors or generate 2.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Xtrackers ShortDAX  vs.  Lithia Motors

Xtrackers ShortDAX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Etf's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Lithia Motors

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Lithia Motors reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers ShortDAX and Lithia Motors

The main advantage of trading using opposite Xtrackers ShortDAX and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers ShortDAX 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 Xtrackers ShortDAX 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.