Correlation Between Bridgestone Corp and LKQ

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

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

Diversification Opportunities for Bridgestone Corp and LKQ

0.32

Correlation Coefficient

Bridgestone Corp  LKQ

Weak diversification

The 3 months correlation between Bridgestone and LKQ is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Bridgestone Corp 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 Corp ADR 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 Corp i.e., Bridgestone Corp and LKQ go up and down completely randomly.

Pair Corralation between Bridgestone Corp and LKQ

Assuming the 90 days horizon Bridgestone Corp ADR is expected to generate 0.77 times more return on investment than LKQ. However, Bridgestone Corp ADR is 1.3 times less risky than LKQ. It trades about 0.01 of its potential returns per unit of risk. LKQ Corporation is currently generating about -0.03 per unit of risk. If you would invest  1,707  in Bridgestone Corp ADR on September 14, 2024 and sell it today you would earn a total of  25.00  from holding Bridgestone Corp ADR or generate 1.46% return on investment over 90 days.

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

Bridgestone Corp ADR  vs.  LKQ Corp.

Bridgestone Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. Even with relatively invariable forward-looking signals, LKQ is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bridgestone Corp and LKQ

The main advantage of trading using opposite Bridgestone Corp and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bridgestone Corp 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 Corp ADR 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.