Correlation Between Lithia Motors and Prestige Wealth

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

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

Diversification Opportunities for Lithia Motors and Prestige Wealth

0.48

Correlation Coefficient

Lithia Motors  Prestige Wealth

Very weak diversification

The 3 months correlation between Lithia and Prestige is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Prestige Wealth Ordinary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prestige Wealth Ordinary 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 Prestige Wealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prestige Wealth Ordinary has no effect on the direction of Lithia Motors i.e., Lithia Motors and Prestige Wealth go up and down completely randomly.

Pair Corralation between Lithia Motors and Prestige Wealth

Considering the 90-day investment horizon Lithia Motors is expected to generate 0.1 times more return on investment than Prestige Wealth. However, Lithia Motors is 10.09 times less risky than Prestige Wealth. It trades about -0.28 of its potential returns per unit of risk. Prestige Wealth Ordinary is currently generating about -0.03 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	Weak
Accuracy	95.24%
Values	Daily Returns

Lithia Motors  vs.  Prestige Wealth Ordinary

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.

Prestige Wealth Ordinary

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Wealth Ordinary are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Prestige Wealth displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and Prestige Wealth

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

The idea behind Lithia Motors and Prestige Wealth Ordinary 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.