Correlation Between Lithia Motors and Americas Car

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

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

Diversification Opportunities for Lithia Motors and Americas Car

0.44

Correlation Coefficient

Lithia Motors  Americas Car

Very weak diversification

The 3 months correlation between Lithia and Americas is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Americas Car Mart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Americas Car Mart and Lithia Motors 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 Lithia Motors are associated (or correlated) with Americas Car. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Americas Car Mart has no effect on the direction of Lithia Motors i.e., Lithia Motors and Americas Car go up and down completely randomly.

Pair Corralation between Lithia Motors and Americas Car

Considering the 90-day investment horizon Lithia Motors is expected to under-perform the Americas Car. But the stock apears to be less risky and, when comparing its historical volatility, Lithia Motors is 1.46 times less risky than Americas Car. The stock trades about -0.13 of its potential returns per unit of risk. The Americas Car Mart is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,115  in Americas Car Mart on December 29, 2024 and sell it today you would lose (555.00) from holding Americas Car Mart or give up 10.85% of portfolio value over 90 days.

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

Lithia Motors  vs.  Americas Car Mart

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.

Americas Car Mart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Americas Car Mart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Lithia Motors and Americas Car

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

The idea behind Lithia Motors and Americas Car Mart 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.