Correlation Between Penske Automotive and Lmp Automotive

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Can any of the company-specific risk be diversified away by investing in both Penske Automotive 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 Penske Automotive and Lmp Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Penske Automotive Group and Lmp Automotive Holdings, you can compare the effects of market volatilities on Penske Automotive 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 Penske Automotive with a short position of Lmp Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penske Automotive and Lmp Automotive.

Diversification Opportunities for Penske Automotive and Lmp Automotive

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between Penske and Lmp Automotive is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Penske Automotive Group 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 Penske Automotive 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 Penske Automotive Group 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 Penske Automotive i.e., Penske Automotive and Lmp Automotive go up and down completely randomly.

Pair Corralation between Penske Automotive and Lmp Automotive

Considering the 90-day investment horizon Penske Automotive Group is expected to generate 0.54 times more return on investment than Lmp Automotive. However, Penske Automotive Group is 1.85 times less risky than Lmp Automotive. It trades about 0.05 of its potential returns per unit of risk. Lmp Automotive Holdings is currently generating about 0.02 per unit of risk. If you would invest  10,108  in Penske Automotive Group on October 30, 2022 and sell it today you would earn a total of  2,361  from holding Penske Automotive Group or generate 23.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.6%
ValuesDaily Returns

Penske Automotive Group  vs.  Lmp Automotive Holdings

 Performance (%) 
       Timeline  
Penske Automotive 
Penske Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Penske Automotive Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Penske Automotive exhibited solid returns over the last few months and may actually be approaching a breakup point.

Penske Price Channel

Lmp Automotive Holdings 
Lmp Automotive Performance
0 of 100
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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Lmp Automotive Price Channel

Penske Automotive and Lmp Automotive Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Penske Automotive and Lmp Automotive

The main advantage of trading using opposite Penske Automotive and Lmp Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penske Automotive 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.
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The idea behind Penske Automotive Group 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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Check out your portfolio center. 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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