Correlation Between LKQ and Standard

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

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

Diversification Opportunities for LKQ and Standard

0.38

Correlation Coefficient

LKQ  Standard

Weak diversification

The 3 months correlation between LKQ and Standard is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products 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 Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of LKQ i.e., LKQ and Standard go up and down completely randomly.

Pair Corralation between LKQ and Standard

Considering the 90-day investment horizon LKQ Corporation is expected to under-perform the Standard. But the stock apears to be less risky and, when comparing its historical volatility, LKQ Corporation is 2.31 times less risky than Standard. The stock trades about -0.09 of its potential returns per unit of risk. The Standard Motor Products is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,313  in Standard Motor Products on September 26, 2024 and sell it today you would lose (254.00) from holding Standard Motor Products or give up 7.67% of portfolio value over 90 days.

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

LKQ Corp.  vs.  Standard Motor Products

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.

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Standard is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with LKQ and Standard

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

The idea behind LKQ Corporation and Standard Motor Products 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.