Correlation Between Tradeweb Markets and Lithia Motors

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

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

Diversification Opportunities for Tradeweb Markets and Lithia Motors

0.39

Correlation Coefficient

Tradeweb Markets  Lithia Motors

Weak diversification

The 3 months correlation between Tradeweb and Lithia is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tradeweb Markets and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Tradeweb Markets 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 Tradeweb Markets 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 Tradeweb Markets i.e., Tradeweb Markets and Lithia Motors go up and down completely randomly.

Pair Corralation between Tradeweb Markets and Lithia Motors

Allowing for the 90-day total investment horizon Tradeweb Markets is expected to under-perform the Lithia Motors. But the stock apears to be less risky and, when comparing its historical volatility, Tradeweb Markets is 1.19 times less risky than Lithia Motors. The stock trades about -0.04 of its potential returns per unit of risk. The Lithia Motors is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  33,484  in Lithia Motors on October 24, 2024 and sell it today you would earn a total of  1,064  from holding Lithia Motors or generate 3.18% return on investment over 90 days.

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

Tradeweb Markets  vs.  Lithia Motors

Tradeweb Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tradeweb Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Tradeweb Markets is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lithia Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 3 (%) 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.

Pair Trading with Tradeweb Markets and Lithia Motors

The main advantage of trading using opposite Tradeweb Markets and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tradeweb Markets 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 Tradeweb Markets 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.