Correlation Between OReilly Automotive and LKQ

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

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

Diversification Opportunities for OReilly Automotive and LKQ

0.73

Correlation Coefficient

OReilly Automotive  LKQ

Poor diversification

The 3 months correlation between OReilly and LKQ is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and OReilly Automotive 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 OReilly Automotive 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 OReilly Automotive i.e., OReilly Automotive and LKQ go up and down completely randomly.

Pair Corralation between OReilly Automotive and LKQ

Given the investment horizon of 90 days OReilly Automotive is expected to generate 0.82 times more return on investment than LKQ. However, OReilly Automotive is 1.22 times less risky than LKQ. It trades about 0.21 of its potential returns per unit of risk. LKQ Corporation is currently generating about 0.14 per unit of risk. If you would invest  119,735  in OReilly Automotive on December 27, 2024 and sell it today you would earn a total of  18,363  from holding OReilly Automotive or generate 15.34% return on investment over 90 days.

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

OReilly Automotive  vs.  LKQ Corp.

OReilly Automotive

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, OReilly Automotive showed solid returns over the last few months and may actually be approaching a breakup point.

LKQ Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LKQ Corporation are ranked lower than 10 (%) 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.

Pair Trading with OReilly Automotive and LKQ

The main advantage of trading using opposite OReilly Automotive and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OReilly Automotive 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 OReilly Automotive 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.