Correlation Between Superior Industries and LKQ
Can any of the company-specific risk be diversified away by investing in both Superior Industries 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 Superior Industries and LKQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Superior Industries International and LKQ Corporation, you can compare the effects of market volatilities on Superior Industries 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 Superior Industries with a short position of LKQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Superior Industries and LKQ.
Diversification Opportunities for Superior Industries and LKQ
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Superior and LKQ is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Superior Industries Internatio and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Superior Industries 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 Superior Industries International 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 Superior Industries i.e., Superior Industries and LKQ go up and down completely randomly.
Pair Corralation between Superior Industries and LKQ
Considering the 90-day investment horizon Superior Industries International is expected to under-perform the LKQ. In addition to that, Superior Industries is 2.4 times more volatile than LKQ Corporation. It trades about -0.27 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Superior Industries Internatio vs. LKQ Corp.
Performance |
| Timeline |
| Superior Industries |
| LKQ Corporation |
Superior Industries and LKQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Superior Industries and LKQ
The main advantage of trading using opposite Superior Industries and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Superior Industries 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 Superior Industries International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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