Correlation Between Franklin Wireless and Lithia Motors

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

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

Diversification Opportunities for Franklin Wireless and Lithia Motors

-0.45

Correlation Coefficient

Franklin Wireless  Lithia Motors

Very good diversification

The 3 months correlation between Franklin and Lithia is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Wireless Corp and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Franklin Wireless 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 Franklin Wireless Corp 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 Franklin Wireless i.e., Franklin Wireless and Lithia Motors go up and down completely randomly.

Pair Corralation between Franklin Wireless and Lithia Motors

Given the investment horizon of 90 days Franklin Wireless Corp is expected to generate 1.67 times more return on investment than Lithia Motors. However, Franklin Wireless is 1.67 times more volatile than Lithia Motors. It trades about 0.16 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.12 per unit of risk. If you would invest  430.00  in Franklin Wireless Corp on December 20, 2024 and sell it today you would earn a total of  139.00  from holding Franklin Wireless Corp or generate 32.33% return on investment over 90 days.

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

Franklin Wireless Corp  vs.  Lithia Motors

Franklin Wireless Corp

Risk-Adjusted Performance

Good

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

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. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Franklin Wireless and Lithia Motors

The main advantage of trading using opposite Franklin Wireless and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Wireless 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 Franklin Wireless Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.