Correlation Between Allison Transmission and LKQ

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

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

Diversification Opportunities for Allison Transmission and LKQ

0.44

Correlation Coefficient

Allison Transmission  LKQ

Very weak diversification

The 3 months correlation between Allison and LKQ is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and LKQ Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LKQ Corporation and Allison Transmission 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 Allison Transmission Holdings 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 Allison Transmission i.e., Allison Transmission and LKQ go up and down completely randomly.

Pair Corralation between Allison Transmission and LKQ

Given the investment horizon of 90 days Allison Transmission Holdings is expected to generate 0.6 times more return on investment than LKQ. However, Allison Transmission Holdings is 1.66 times less risky than LKQ. It trades about 0.0 of its potential returns per unit of risk. LKQ Corporation is currently generating about -0.11 per unit of risk. If you would invest  7,596  in Allison Transmission Holdings on March 3, 2024 and sell it today you would lose (15.00) from holding Allison Transmission Holdings or give up 0.2% of portfolio value over 90 days.

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

Allison Transmission Holdings  vs.  LKQ Corp.

Allison Transmission

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Allison Transmission is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 abnormal performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Allison Transmission and LKQ

The main advantage of trading using opposite Allison Transmission and LKQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allison Transmission 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 Allison Transmission Holdings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.