Correlation Between LKQ and DENSO
Can any of the company-specific risk be diversified away by investing in both LKQ and DENSO 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 LKQ and DENSO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LKQ Corporation and DENSO, you can compare the effects of market volatilities on LKQ and DENSO 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 LKQ with a short position of DENSO. Check out your portfolio center. Please also check ongoing floating volatility patterns of LKQ and DENSO.
Diversification Opportunities for LKQ and DENSO
Average diversification
The 3 months correlation between LKQ and DENSO is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and DENSO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENSO and LKQ 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 LKQ Corporation are associated (or correlated) with DENSO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENSO has no effect on the direction of LKQ i.e., LKQ and DENSO go up and down completely randomly.
Pair Corralation between LKQ and DENSO
Considering the 90-day investment horizon LKQ Corporation is expected to under-perform the DENSO. But the stock apears to be less risky and, when comparing its historical volatility, LKQ Corporation is 3.14 times less risky than DENSO. The stock trades about -0.03 of its potential returns per unit of risk. The DENSO is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,565 in DENSO on August 29, 2024 and sell it today you would lose (229.00) from holding DENSO or give up 14.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
LKQ Corp. vs. DENSO
Performance |
| Timeline |
| LKQ Corporation |
| DENSO |
LKQ and DENSO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LKQ and DENSO
The main advantage of trading using opposite LKQ and DENSO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LKQ position performs unexpectedly, DENSO 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 DENSO will offset losses from the drop in DENSO's long position.The idea behind LKQ Corporation and DENSO 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.| DENSO vs. Bridgestone Corp ADR | DENSO vs. American Axle Manufacturing | DENSO vs. Dana Inc | DENSO vs. Aeva Technologies |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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