Correlation Between Visteon Corp and LKQ

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

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

Diversification Opportunities for Visteon Corp and LKQ

-0.08

Correlation Coefficient

Visteon Corp  LKQ

Good diversification

The 3 months correlation between Visteon and LKQ is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Visteon Corp and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Visteon 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 Visteon 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 Visteon Corp i.e., Visteon Corp and LKQ go up and down completely randomly.

Pair Corralation between Visteon Corp and LKQ

Allowing for the 90-day total investment horizon Visteon Corp is expected to under-perform the LKQ. In addition to that, Visteon Corp is 1.26 times more volatile than LKQ Corporation. It trades about -0.03 of its total potential returns per unit of risk. LKQ Corporation is currently generating about 0.13 per unit of volatility. If you would invest  3,674  in LKQ Corporation on December 26, 2024 and sell it today you would earn a total of  425.00  from holding LKQ Corporation or generate 11.57% return on investment over 90 days.

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

Visteon Corp  vs.  LKQ Corp.

Visteon Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Visteon Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Visteon Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Visteon Corp and LKQ

The main advantage of trading using opposite Visteon Corp and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visteon 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 Visteon 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.