Correlation Between Lithia Motors and Sellas Life

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

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

Diversification Opportunities for Lithia Motors and Sellas Life

0.1

Correlation Coefficient

Lithia Motors  Sellas Life

Average diversification

The 3 months correlation between Lithia and Sellas is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Sellas Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sellas Life Sciences 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 Sellas Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sellas Life Sciences has no effect on the direction of Lithia Motors i.e., Lithia Motors and Sellas Life go up and down completely randomly.

Pair Corralation between Lithia Motors and Sellas Life

Considering the 90-day investment horizon Lithia Motors is expected to generate 0.41 times more return on investment than Sellas Life. However, Lithia Motors is 2.46 times less risky than Sellas Life. It trades about 0.03 of its potential returns per unit of risk. Sellas Life Sciences is currently generating about -0.01 per unit of risk. If you would invest  28,505  in Lithia Motors on October 25, 2024 and sell it today you would earn a total of  6,220  from holding Lithia Motors or generate 21.82% return on investment over 90 days.

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

Lithia Motors  vs.  Sellas Life Sciences

Lithia Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 4 (%) 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.

Sellas Life Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sellas Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Lithia Motors and Sellas Life

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

The idea behind Lithia Motors and Sellas Life Sciences 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.