Correlation Between LCI Industries and Ree Automotive

Can any of the company-specific risk be diversified away by investing in both LCI Industries and Ree Automotive 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 LCI Industries and Ree Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LCI Industries and Ree Automotive Holding, you can compare the effects of market volatilities on LCI Industries and Ree Automotive 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 LCI Industries with a short position of Ree Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of LCI Industries and Ree Automotive.

Diversification Opportunities for LCI Industries and Ree Automotive

0.78

Correlation Coefficient

LCI Industries  Ree Automotive

Poor diversification

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

Pair Corralation between LCI Industries and Ree Automotive

Given the investment horizon of 90 days LCI Industries is expected to generate 0.33 times more return on investment than Ree Automotive. However, LCI Industries is 3.04 times less risky than Ree Automotive. It trades about -0.1 of its potential returns per unit of risk. Ree Automotive Holding is currently generating about -0.19 per unit of risk. If you would invest  10,318  in LCI Industries on December 26, 2024 and sell it today you would lose (1,334) from holding LCI Industries or give up 12.93% of portfolio value over 90 days.

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

LCI Industries  vs.  Ree Automotive Holding

LCI Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days LCI Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Ree Automotive Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ree Automotive Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with LCI Industries and Ree Automotive

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

The idea behind LCI Industries and Ree Automotive Holding 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.