Correlation Between Lithia Motors and Gap,

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

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

Diversification Opportunities for Lithia Motors and Gap,

0.63

Correlation Coefficient

Lithia Motors  Gap,

Poor diversification

The 3 months correlation between Lithia and Gap, is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and The Gap, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap, 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 Gap,. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap, has no effect on the direction of Lithia Motors i.e., Lithia Motors and Gap, go up and down completely randomly.

Pair Corralation between Lithia Motors and Gap,

Considering the 90-day investment horizon Lithia Motors is expected to under-perform the Gap,. But the stock apears to be less risky and, when comparing its historical volatility, Lithia Motors is 1.7 times less risky than Gap,. The stock trades about -0.13 of its potential returns per unit of risk. The The Gap, is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,367  in The Gap, on December 18, 2024 and sell it today you would lose (357.00) from holding The Gap, or give up 15.08% of portfolio value over 90 days.

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

Lithia Motors  vs.  The Gap,

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.

Gap,

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Gap, has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Lithia Motors and Gap,

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

The idea behind Lithia Motors and The Gap, 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.