Correlation Between Lithia Motors and CD Projekt

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

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

Diversification Opportunities for Lithia Motors and CD Projekt

0.67

Correlation Coefficient

Lithia Motors  CD Projekt

Poor diversification

The 3 months correlation between Lithia and 7CD is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Lithia Motors and CD Projekt SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CD Projekt SA 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 CD Projekt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CD Projekt SA has no effect on the direction of Lithia Motors i.e., Lithia Motors and CD Projekt go up and down completely randomly.

Pair Corralation between Lithia Motors and CD Projekt

Assuming the 90 days horizon Lithia Motors is expected to generate 1.89 times less return on investment than CD Projekt. But when comparing it to its historical volatility, Lithia Motors is 1.01 times less risky than CD Projekt. It trades about 0.07 of its potential returns per unit of risk. CD Projekt SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,179  in CD Projekt SA on April 22, 2025 and sell it today you would earn a total of  1,047  from holding CD Projekt SA or generate 20.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Lithia Motors  vs.  CD Projekt SA

Lithia Motors

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lithia Motors are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lithia Motors may actually be approaching a critical reversion point that can send shares even higher in August 2025.

CD Projekt SA

Risk-Adjusted Performance

OK

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

Pair Trading with Lithia Motors and CD Projekt

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

The idea behind Lithia Motors and CD Projekt SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.