Correlation Between LKQ and Aptiv PLC

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

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

Diversification Opportunities for LKQ and Aptiv PLC

-0.43

Correlation Coefficient

LKQ  Aptiv PLC

Very good diversification

The 3 months correlation between LKQ and Aptiv is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv PLC 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 Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of LKQ i.e., LKQ and Aptiv PLC go up and down completely randomly.

Pair Corralation between LKQ and Aptiv PLC

Assuming the 90 days trading horizon LKQ Corporation is expected to under-perform the Aptiv PLC. But the stock apears to be less risky and, when comparing its historical volatility, LKQ Corporation is 1.16 times less risky than Aptiv PLC. The stock trades about -0.2 of its potential returns per unit of risk. The Aptiv PLC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,250  in Aptiv PLC on September 23, 2024 and sell it today you would earn a total of  237.00  from holding Aptiv PLC or generate 4.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

LKQ Corp.  vs.  Aptiv PLC

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. 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

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with LKQ and Aptiv PLC

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

The idea behind LKQ Corporation and Aptiv PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.