Correlation Between Carvana and Lmp Automotive

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

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

Diversification Opportunities for Carvana and Lmp Automotive

0.0

Correlation Coefficient

Carvana  Lmp Automotive

Pay attention - limited upside

The 3 months correlation between Carvana and Lmp is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Carvana Co and Lmp Automotive Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lmp Automotive Holdings and Carvana 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 Carvana Co are associated (or correlated) with Lmp Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lmp Automotive Holdings has no effect on the direction of Carvana i.e., Carvana and Lmp Automotive go up and down completely randomly.

Pair Corralation between Carvana and Lmp Automotive

Given the investment horizon of 90 days Carvana Co is expected to generate 2.54 times more return on investment than Lmp Automotive. However, Carvana is 2.54 times more volatile than Lmp Automotive Holdings. It trades about 0.07 of its potential returns per unit of risk. Lmp Automotive Holdings is currently generating about 0.08 per unit of risk. If you would invest  2,944  in Carvana Co on January 20, 2024 and sell it today you would earn a total of  4,171  from holding Carvana Co or generate 141.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	37.26%
Values	Daily Returns

Carvana Co  vs.  Lmp Automotive Holdings

Carvana

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Lmp Automotive Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Carvana and Lmp Automotive

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

The idea behind Carvana Co and Lmp Automotive Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.