Correlation Between LKQ and Monro Muffler

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

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

Diversification Opportunities for LKQ and Monro Muffler

0.43

Correlation Coefficient

LKQ  Monro Muffler

Very weak diversification

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

Pair Corralation between LKQ and Monro Muffler

Considering the 90-day investment horizon LKQ Corporation is expected to generate 0.68 times more return on investment than Monro Muffler. However, LKQ Corporation is 1.47 times less risky than Monro Muffler. It trades about -0.03 of its potential returns per unit of risk. Monro Muffler Brake is currently generating about -0.1 per unit of risk. If you would invest  3,747  in LKQ Corporation on September 26, 2024 and sell it today you would lose (77.00) from holding LKQ Corporation or give up 2.05% of portfolio value over 90 days.

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

LKQ Corp.  vs.  Monro Muffler Brake

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. Even with latest weak performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Monro Muffler Brake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with LKQ and Monro Muffler

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

The idea behind LKQ Corporation and Monro Muffler Brake 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.