Correlation Between Lithia Motors and AKA Brands

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

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

Diversification Opportunities for Lithia Motors and AKA Brands

-0.54

Correlation Coefficient

Lithia Motors  AKA Brands

Excellent diversification

The 3 months correlation between Lithia and AKA is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and AKA Brands Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKA Brands Holding and Lithia Motors 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 Lithia Motors are associated (or correlated) with AKA Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKA Brands Holding has no effect on the direction of Lithia Motors i.e., Lithia Motors and AKA Brands go up and down completely randomly.

Pair Corralation between Lithia Motors and AKA Brands

Considering the 90-day investment horizon Lithia Motors is expected to generate 13.66 times less return on investment than AKA Brands. But when comparing it to its historical volatility, Lithia Motors is 4.19 times less risky than AKA Brands. It trades about 0.15 of its potential returns per unit of risk. AKA Brands Holding is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  1,174  in AKA Brands Holding on February 15, 2024 and sell it today you would earn a total of  1,734  from holding AKA Brands Holding or generate 147.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Lithia Motors  vs.  AKA Brands Holding

Lithia Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lithia Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

AKA Brands Holding

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AKA Brands Holding are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain forward-looking signals, AKA Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithia Motors and AKA Brands

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

The idea behind Lithia Motors and AKA Brands 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.