Correlation Between AutoNation and LKQ
Can any of the company-specific risk be diversified away by investing in both AutoNation and LKQ 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 AutoNation and LKQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AutoNation and LKQ Corporation, you can compare the effects of market volatilities on AutoNation and LKQ 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 AutoNation with a short position of LKQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and LKQ.
Diversification Opportunities for AutoNation and LKQ
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AutoNation and LKQ is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and AutoNation 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 AutoNation are associated (or correlated) with LKQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LKQ Corporation has no effect on the direction of AutoNation i.e., AutoNation and LKQ go up and down completely randomly.
Pair Corralation between AutoNation and LKQ
Allowing for the 90-day total investment horizon AutoNation is expected to generate 1.13 times more return on investment than LKQ. However, AutoNation is 1.13 times more volatile than LKQ Corporation. It trades about 0.06 of its potential returns per unit of risk. LKQ Corporation is currently generating about -0.02 per unit of risk. If you would invest 13,258 in AutoNation on August 24, 2024 and sell it today you would earn a total of 3,747 from holding AutoNation or generate 28.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AutoNation vs. LKQ Corp.
Performance |
| Timeline |
| AutoNation |
| LKQ Corporation |
AutoNation and LKQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AutoNation and LKQ
The main advantage of trading using opposite AutoNation and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation position performs unexpectedly, LKQ 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 LKQ will offset losses from the drop in LKQ's long position.| AutoNation vs. Sonic Automotive | AutoNation vs. Lithia Motors | AutoNation vs. Asbury Automotive Group | AutoNation vs. Penske Automotive Group |
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 the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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