Correlation Between Ross Stores and LKQ

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

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

Diversification Opportunities for Ross Stores and LKQ

-0.45

Correlation Coefficient

Ross Stores  LKQ

Very good diversification

The 3 months correlation between Ross and LKQ is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and LKQ go up and down completely randomly.

Pair Corralation between Ross Stores and LKQ

Given the investment horizon of 90 days Ross Stores is expected to under-perform the LKQ. But the stock apears to be less risky and, when comparing its historical volatility, Ross Stores is 1.28 times less risky than LKQ. The stock trades about -0.15 of its potential returns per unit of risk. The LKQ Corporation is currently generating about 0.09 of returns per unit of risk over similar time horizon. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ross Stores  vs.  LKQ Corp.

Ross Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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.

Pair Trading with Ross Stores and LKQ

The main advantage of trading using opposite Ross Stores and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.