Correlation Between Lithia Motors and Albireo Pharma

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

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

Diversification Opportunities for Lithia Motors and Albireo Pharma

-0.47

Correlation Coefficient

Lithia Motors  Albireo Pharma

Very good diversification

The 3 months correlation between Lithia and Albireo is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and Albireo Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albireo Pharma 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 Albireo Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albireo Pharma has no effect on the direction of Lithia Motors i.e., Lithia Motors and Albireo Pharma go up and down completely randomly.

Pair Corralation between Lithia Motors and Albireo Pharma

If you would invest  23,610  in Lithia Motors on January 25, 2024 and sell it today you would earn a total of  1,212  from holding Lithia Motors or generate 5.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	0.81%
Values	Daily Returns

Lithia Motors  vs.  Albireo Pharma

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.

Albireo Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Albireo Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Albireo Pharma is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lithia Motors and Albireo Pharma

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

The idea behind Lithia Motors and Albireo Pharma 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.