Correlation Between Lear and LKQ
Can any of the company-specific risk be diversified away by investing in both Lear 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 Lear and LKQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and LKQ Corporation, you can compare the effects of market volatilities on Lear 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 Lear with a short position of LKQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and LKQ.
Diversification Opportunities for Lear and LKQ
Very poor diversification
The 3 months correlation between Lear and LKQ is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Lear 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 Lear Corporation 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 Lear i.e., Lear and LKQ go up and down completely randomly.
Pair Corralation between Lear and LKQ
Considering the 90-day investment horizon Lear Corporation is expected to under-perform the LKQ. In addition to that, Lear is 1.12 times more volatile than LKQ Corporation. It trades about -0.09 of its total potential returns per unit of risk. LKQ Corporation is currently generating about 0.11 per unit of volatility. If you would invest 3,747 in LKQ Corporation on August 27, 2024 and sell it today you would earn a total of 103.00 from holding LKQ Corporation or generate 2.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. LKQ Corp.
Performance |
| Timeline |
| Lear |
| LKQ Corporation |
Lear and LKQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and LKQ
The main advantage of trading using opposite Lear and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear 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.The idea behind Lear Corporation and LKQ Corporation 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.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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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