Correlation Between Driven Brands and Lithia Motors

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

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

Diversification Opportunities for Driven Brands and Lithia Motors

0.94

Correlation Coefficient

Driven Brands  Lithia Motors

Almost no diversification

The 3 months correlation between Driven and Lithia is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Driven Brands Holdings and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Driven Brands 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 Driven Brands Holdings 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 Driven Brands i.e., Driven Brands and Lithia Motors go up and down completely randomly.

Pair Corralation between Driven Brands and Lithia Motors

Given the investment horizon of 90 days Driven Brands Holdings is expected to under-perform the Lithia Motors. In addition to that, Driven Brands is 1.28 times more volatile than Lithia Motors. It trades about -0.02 of its total potential returns per unit of risk. Lithia Motors is currently generating about 0.04 per unit of volatility. If you would invest  27,084  in Lithia Motors on October 1, 2024 and sell it today you would earn a total of  9,014  from holding Lithia Motors or generate 33.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.79%
Values	Daily Returns

Driven Brands Holdings  vs.  Lithia Motors

Driven Brands Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lithia Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Lithia Motors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Driven Brands and Lithia Motors

The main advantage of trading using opposite Driven Brands and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Driven Brands 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 Driven Brands Holdings 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..