Correlation Between Lithia Motors and Tarsus Pharmaceuticals

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

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

Diversification Opportunities for Lithia Motors and Tarsus Pharmaceuticals

0.78

Correlation Coefficient

Lithia Motors  Tarsus Pharmaceuticals

Poor diversification

The 3 months correlation between Lithia and Tarsus is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Tarsus Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarsus Pharmaceuticals 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 Tarsus Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarsus Pharmaceuticals has no effect on the direction of Lithia Motors i.e., Lithia Motors and Tarsus Pharmaceuticals go up and down completely randomly.

Pair Corralation between Lithia Motors and Tarsus Pharmaceuticals

Considering the 90-day investment horizon Lithia Motors is expected to generate 3.21 times less return on investment than Tarsus Pharmaceuticals. But when comparing it to its historical volatility, Lithia Motors is 1.65 times less risky than Tarsus Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. Tarsus Pharmaceuticals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,493  in Tarsus Pharmaceuticals on October 11, 2024 and sell it today you would earn a total of  4,031  from holding Tarsus Pharmaceuticals or generate 269.99% return on investment over 90 days.

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

Lithia Motors  vs.  Tarsus Pharmaceuticals

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.

Tarsus Pharmaceuticals

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tarsus Pharmaceuticals are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Tarsus Pharmaceuticals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and Tarsus Pharmaceuticals

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

The idea behind Lithia Motors and Tarsus Pharmaceuticals 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.