Correlation Between NI Holdings and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both NI Holdings and Lithia Motors 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 NI Holdings and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NI Holdings and Lithia Motors, you can compare the effects of market volatilities on NI Holdings and Lithia Motors 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 NI Holdings with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of NI Holdings and Lithia Motors.
Diversification Opportunities for NI Holdings and Lithia Motors
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NODK and Lithia is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and NI Holdings 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 NI Holdings are associated (or correlated) with Lithia Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithia Motors has no effect on the direction of NI Holdings i.e., NI Holdings and Lithia Motors go up and down completely randomly.
Pair Corralation between NI Holdings and Lithia Motors
Given the investment horizon of 90 days NI Holdings is expected to under-perform the Lithia Motors. But the stock apears to be less risky and, when comparing its historical volatility, NI Holdings is 1.14 times less risky than Lithia Motors. The stock trades about -0.35 of its potential returns per unit of risk. The Lithia Motors is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest 36,626 in Lithia Motors on October 26, 2024 and sell it today you would lose (2,057) from holding Lithia Motors or give up 5.62% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
NI Holdings vs. Lithia Motors
Performance |
Timeline |
NI Holdings |
Lithia Motors |
NI Holdings and Lithia Motors Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NI Holdings and Lithia Motors
The main advantage of trading using opposite NI Holdings and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NI Holdings position performs unexpectedly, Lithia Motors 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 Lithia Motors will offset losses from the drop in Lithia Motors' long position.NI Holdings vs. Horace Mann Educators | NI Holdings vs. Donegal Group A | NI Holdings vs. Global Indemnity PLC | NI Holdings vs. Selective Insurance Group |
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Check out your portfolio center.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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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