Correlation Between Fortive Corp and LKQ

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

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

Diversification Opportunities for Fortive Corp and LKQ

-0.07

Correlation Coefficient

Fortive Corp  LKQ

Good diversification

The 3 months correlation between Fortive and LKQ is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Fortive Corp and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Fortive 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 Fortive Corp 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 Fortive Corp i.e., Fortive Corp and LKQ go up and down completely randomly.

Pair Corralation between Fortive Corp and LKQ

Considering the 90-day investment horizon Fortive Corp is expected to under-perform the LKQ. But the stock apears to be less risky and, when comparing its historical volatility, Fortive Corp is 1.21 times less risky than LKQ. The stock trades about -0.01 of its potential returns per unit of risk. The LKQ Corporation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,663  in LKQ Corporation on December 27, 2024 and sell it today you would earn a total of  477.00  from holding LKQ Corporation or generate 13.02% return on investment over 90 days.

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

Fortive Corp  vs.  LKQ Corp.

Fortive Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortive Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Fortive Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LKQ Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LKQ Corporation are ranked lower than 11 (%) 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 Fortive Corp and LKQ

The main advantage of trading using opposite Fortive Corp and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortive 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 Fortive Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.