Correlation Between Wolverine World and LKQ

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

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

Diversification Opportunities for Wolverine World and LKQ

0.01

Correlation Coefficient

Wolverine World  LKQ

Significant diversification

The 3 months correlation between Wolverine and LKQ is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Wolverine World Wide and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Wolverine World 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 Wolverine World Wide 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 Wolverine World i.e., Wolverine World and LKQ go up and down completely randomly.

Pair Corralation between Wolverine World and LKQ

Considering the 90-day investment horizon Wolverine World Wide is expected to generate 2.39 times more return on investment than LKQ. However, Wolverine World is 2.39 times more volatile than LKQ Corporation. It trades about 0.07 of its potential returns per unit of risk. LKQ Corporation is currently generating about -0.03 per unit of risk. If you would invest  971.00  in Wolverine World Wide on September 14, 2024 and sell it today you would earn a total of  1,380  from holding Wolverine World Wide or generate 142.12% return on investment over 90 days.

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

Wolverine World Wide  vs.  LKQ Corp.

Wolverine World Wide

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wolverine World Wide are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Wolverine World showed solid returns over the last few months and may actually be approaching a breakup point.

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 relatively invariable forward-looking signals, LKQ 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 Wolverine World and LKQ

The main advantage of trading using opposite Wolverine World and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wolverine World 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 Wolverine World Wide 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.