Correlation Between Benchmark Electronics and LKQ Corp

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

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

Diversification Opportunities for Benchmark Electronics and LKQ Corp

0.58

Correlation Coefficient

Benchmark Electronics  LKQ Corp

Very weak diversification

The 3 months correlation between Benchmark and LKQ is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Benchmark Electronics and LKQ Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corp and Benchmark Electronics 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 Benchmark Electronics are associated (or correlated) with LKQ Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LKQ Corp has no effect on the direction of Benchmark Electronics i.e., Benchmark Electronics and LKQ Corp go up and down completely randomly.

Pair Corralation between Benchmark Electronics and LKQ Corp

Assuming the 90 days horizon Benchmark Electronics is expected to under-perform the LKQ Corp. In addition to that, Benchmark Electronics is 1.34 times more volatile than LKQ Corp. It trades about -0.12 of its total potential returns per unit of risk. LKQ Corp is currently generating about -0.08 per unit of volatility. If you would invest  3,650  in LKQ Corp on October 10, 2024 and sell it today you would lose (150.00) from holding LKQ Corp or give up 4.11% of portfolio value over 90 days.

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

Benchmark Electronics  vs.  LKQ Corp

Benchmark Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benchmark Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

LKQ Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LKQ Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, LKQ Corp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Benchmark Electronics and LKQ Corp

The main advantage of trading using opposite Benchmark Electronics and LKQ Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Benchmark Electronics position performs unexpectedly, LKQ Corp 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 Corp will offset losses from the drop in LKQ Corp's long position.

The idea behind Benchmark Electronics and LKQ Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.