Correlation Between USS and Lithia Motors

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

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

Diversification Opportunities for USS and Lithia Motors

0.5

Correlation Coefficient

USS  Lithia Motors

Very weak diversification

The 3 months correlation between USS and Lithia is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding USS Co and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and USS 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 USS Co 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 USS i.e., USS and Lithia Motors go up and down completely randomly.

Pair Corralation between USS and Lithia Motors

Assuming the 90 days horizon USS Co is expected to generate 0.75 times more return on investment than Lithia Motors. However, USS Co is 1.33 times less risky than Lithia Motors. It trades about -0.12 of its potential returns per unit of risk. Lithia Motors is currently generating about -0.22 per unit of risk. If you would invest  855.00  in USS Co on September 23, 2024 and sell it today you would lose (20.00) from holding USS Co or give up 2.34% of portfolio value over 90 days.

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

USS Co  vs.  Lithia Motors

USS Co

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in USS Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, USS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lithia Motors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lithia Motors reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with USS and Lithia Motors

The main advantage of trading using opposite USS and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USS 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 USS Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.