Correlation Between Aptiv PLC and LKQ

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Can any of the company-specific risk be diversified away by investing in both Aptiv PLC 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 Aptiv PLC and LKQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aptiv PLC and LKQ Corporation, you can compare the effects of market volatilities on Aptiv PLC 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 Aptiv PLC with a short position of LKQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aptiv PLC and LKQ.

Diversification Opportunities for Aptiv PLC and LKQ

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Aptiv and LKQ is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Aptiv PLC and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Aptiv PLC 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 Aptiv PLC 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 Aptiv PLC i.e., Aptiv PLC and LKQ go up and down completely randomly.

Pair Corralation between Aptiv PLC and LKQ

Assuming the 90 days horizon Aptiv PLC is expected to under-perform the LKQ. In addition to that, Aptiv PLC is 1.2 times more volatile than LKQ Corporation. It trades about -0.04 of its total potential returns per unit of risk. LKQ Corporation is currently generating about -0.02 per unit of volatility. If you would invest  3,938  in LKQ Corporation on September 23, 2024 and sell it today you would lose (478.00) from holding LKQ Corporation or give up 12.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.64%
ValuesDaily Returns

Aptiv PLC  vs.  LKQ Corp.

 Performance 
       Timeline  
Aptiv PLC 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Aptiv PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
LKQ Corporation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Aptiv PLC and LKQ Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aptiv PLC and LKQ

The main advantage of trading using opposite Aptiv PLC and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aptiv PLC 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 Aptiv PLC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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