Correlation Between Lithia Motors and Skechers USA

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

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

Diversification Opportunities for Lithia Motors and Skechers USA

-0.01

Correlation Coefficient

Lithia Motors  Skechers USA

Good diversification

The 3 months correlation between Lithia and Skechers is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Skechers USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skechers USA 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 Skechers USA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skechers USA has no effect on the direction of Lithia Motors i.e., Lithia Motors and Skechers USA go up and down completely randomly.

Pair Corralation between Lithia Motors and Skechers USA

Considering the 90-day investment horizon Lithia Motors is expected to generate 4.77 times less return on investment than Skechers USA. But when comparing it to its historical volatility, Lithia Motors is 1.16 times less risky than Skechers USA. It trades about 0.04 of its potential returns per unit of risk. Skechers USA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,163  in Skechers USA on October 24, 2024 and sell it today you would earn a total of  1,183  from holding Skechers USA or generate 19.2% return on investment over 90 days.

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

Lithia Motors  vs.  Skechers USA

Lithia Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lithia Motors is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Skechers USA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Skechers USA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Skechers USA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and Skechers USA

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

The idea behind Lithia Motors and Skechers USA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.