Correlation Between TAMBANG BATUBARA-B- and Lithia Motors

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

By analyzing existing cross correlation between TAMBANG BATUBARA B and Lithia Motors, you can compare the effects of market volatilities on TAMBANG BATUBARA-B- 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 TAMBANG BATUBARA-B- with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of TAMBANG BATUBARA-B- and Lithia Motors.

Diversification Opportunities for TAMBANG BATUBARA-B- and Lithia Motors

0.67

Correlation Coefficient

TAMBANG BATUBARA-B-  Lithia Motors

Poor diversification

The 3 months correlation between TAMBANG and Lithia is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding TAMBANG BATUBARA B and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and TAMBANG BATUBARA-B- 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 TAMBANG BATUBARA B 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 TAMBANG BATUBARA-B- i.e., TAMBANG BATUBARA-B- and Lithia Motors go up and down completely randomly.

Pair Corralation between TAMBANG BATUBARA-B- and Lithia Motors

Assuming the 90 days trading horizon TAMBANG BATUBARA B is expected to under-perform the Lithia Motors. In addition to that, TAMBANG BATUBARA-B- is 1.2 times more volatile than Lithia Motors. It trades about -0.1 of its total potential returns per unit of risk. Lithia Motors is currently generating about -0.12 per unit of volatility. If you would invest  34,343  in Lithia Motors on December 29, 2024 and sell it today you would lose (5,943) from holding Lithia Motors or give up 17.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

TAMBANG BATUBARA B   vs.  Lithia Motors

TAMBANG BATUBARA-B-

Risk-Adjusted Performance

Very Weak

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

Lithia Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithia Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with TAMBANG BATUBARA-B- and Lithia Motors

The main advantage of trading using opposite TAMBANG BATUBARA-B- and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TAMBANG BATUBARA-B- 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.

The idea behind TAMBANG BATUBARA B and Lithia Motors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.