Correlation Between LKQ and Lear

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

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

Diversification Opportunities for LKQ and Lear

0.56

Correlation Coefficient

LKQ  Lear

Very weak diversification

The 3 months correlation between LKQ and Lear is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear and LKQ 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 LKQ Corporation are associated (or correlated) with Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of LKQ i.e., LKQ and Lear go up and down completely randomly.

Pair Corralation between LKQ and Lear

Considering the 90-day investment horizon LKQ Corporation is expected to generate 1.01 times more return on investment than Lear. However, LKQ is 1.01 times more volatile than Lear Corporation. It trades about 0.09 of its potential returns per unit of risk. Lear Corporation is currently generating about -0.05 per unit of risk. If you would invest  3,928  in LKQ Corporation on December 1, 2024 and sell it today you would earn a total of  291.00  from holding LKQ Corporation or generate 7.41% return on investment over 90 days.

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

LKQ Corp.  vs.  Lear Corp.

LKQ Corporation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LKQ Corporation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, LKQ may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lear

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lear Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Lear is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LKQ and Lear

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

The idea behind LKQ Corporation and Lear 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.