Correlation Between Bridgestone and LKQ

Can any of the company-specific risk be diversified away by investing in both Bridgestone 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 Bridgestone and LKQ into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bridgestone and LKQ Corporation, you can compare the effects of market volatilities on Bridgestone 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 Bridgestone with a short position of LKQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bridgestone and LKQ.

Diversification Opportunities for Bridgestone and LKQ

-0.05

Correlation Coefficient

Bridgestone  LKQ

Good diversification

The 3 months correlation between Bridgestone and LKQ is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Bridgestone 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 Bridgestone 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 Bridgestone i.e., Bridgestone and LKQ go up and down completely randomly.

Pair Corralation between Bridgestone and LKQ

Assuming the 90 days trading horizon Bridgestone is expected to under-perform the LKQ. But the stock apears to be less risky and, when comparing its historical volatility, Bridgestone is 1.39 times less risky than LKQ. The stock trades about -0.14 of its potential returns per unit of risk. The LKQ Corporation is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,471  in LKQ Corporation on September 23, 2024 and sell it today you would lose (11.00) from holding LKQ Corporation or give up 0.32% of portfolio value over 90 days.

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

Bridgestone  vs.  LKQ Corp.

Bridgestone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LKQ Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LKQ Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LKQ is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bridgestone and LKQ

The main advantage of trading using opposite Bridgestone and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bridgestone 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 Bridgestone 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.