Correlation Between LKQ and DENSO P
Can any of the company-specific risk be diversified away by investing in both LKQ and DENSO P 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 P 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 P ADR, you can compare the effects of market volatilities on LKQ and DENSO P 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 P. Check out your portfolio center. Please also check ongoing floating volatility patterns of LKQ and DENSO P.
Diversification Opportunities for LKQ and DENSO P
Very weak diversification
The 3 months correlation between LKQ and DENSO is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and DENSO P ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENSO P ADR 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 P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENSO P ADR has no effect on the direction of LKQ i.e., LKQ and DENSO P go up and down completely randomly.
Pair Corralation between LKQ and DENSO P
Assuming the 90 days trading horizon LKQ Corporation is expected to under-perform the DENSO P. But the stock apears to be less risky and, when comparing its historical volatility, LKQ Corporation is 1.26 times less risky than DENSO P. The stock trades about -0.03 of its potential returns per unit of risk. The DENSO P ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,073 in DENSO P ADR on September 23, 2024 and sell it today you would earn a total of 157.00 from holding DENSO P ADR or generate 14.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LKQ Corp. vs. DENSO P ADR
Performance |
| Timeline |
| LKQ Corporation |
| DENSO P ADR |
LKQ and DENSO P Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LKQ and DENSO P
The main advantage of trading using opposite LKQ and DENSO P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LKQ position performs unexpectedly, DENSO P 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 P will offset losses from the drop in DENSO P's long position.The idea behind LKQ Corporation and DENSO P ADR 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 P vs. Dno ASA | DENSO P vs. Aptiv PLC | DENSO P vs. PT Astra International | DENSO P vs. Magna International |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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