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

-0.33

Correlation Coefficient

AutoNation  LKQ

Very good diversification

The 3 months correlation between AutoNation and LKQ is -0.33. 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 under-perform the LKQ. In addition to that, AutoNation is 1.36 times more volatile than LKQ Corporation. It trades about -0.02 of its total potential returns per unit of risk. LKQ Corporation is currently generating about 0.17 per unit of volatility. If you would invest  3,596  in LKQ Corporation on December 28, 2024 and sell it today you would earn a total of  544.00  from holding LKQ Corporation or generate 15.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

AutoNation  vs.  LKQ Corp.

AutoNation

Risk-Adjusted Performance

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

LKQ Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LKQ Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, LKQ reported solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind AutoNation 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.