Correlation Between Lithia Motors and NI Holdings

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

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

Diversification Opportunities for Lithia Motors and NI Holdings

0.64

Correlation Coefficient

Lithia Motors  NI Holdings

Poor diversification

The 3 months correlation between Lithia and NODK is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and NI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NI Holdings 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 NI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NI Holdings has no effect on the direction of Lithia Motors i.e., Lithia Motors and NI Holdings go up and down completely randomly.

Pair Corralation between Lithia Motors and NI Holdings

Considering the 90-day investment horizon Lithia Motors is expected to generate 0.96 times more return on investment than NI Holdings. However, Lithia Motors is 1.04 times less risky than NI Holdings. It trades about -0.27 of its potential returns per unit of risk. NI Holdings is currently generating about -0.41 per unit of risk. If you would invest  37,652  in Lithia Motors on October 11, 2024 and sell it today you would lose (2,747) from holding Lithia Motors or give up 7.3% 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.  NI Holdings

Lithia Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Lithia Motors exhibited solid returns over the last few months and may actually be approaching a breakup point.

NI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, NI Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lithia Motors and NI Holdings

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

The idea behind Lithia Motors and NI Holdings 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.