Correlation Between LKQ and Luminar Technologies

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

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

Diversification Opportunities for LKQ and Luminar Technologies

0.05

Correlation Coefficient

LKQ  Luminar Technologies

Significant diversification

The 3 months correlation between LKQ and Luminar is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and Luminar Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luminar Technologies 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 Luminar Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luminar Technologies has no effect on the direction of LKQ i.e., LKQ and Luminar Technologies go up and down completely randomly.

Pair Corralation between LKQ and Luminar Technologies

Considering the 90-day investment horizon LKQ Corporation is expected to generate 0.25 times more return on investment than Luminar Technologies. However, LKQ Corporation is 3.95 times less risky than Luminar Technologies. It trades about -0.01 of its potential returns per unit of risk. Luminar Technologies is currently generating about -0.07 per unit of risk. If you would invest  4,156  in LKQ Corporation on September 5, 2024 and sell it today you would lose (214.00) from holding LKQ Corporation or give up 5.15% of portfolio value over 90 days.

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

LKQ Corp.  vs.  Luminar Technologies

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.

Luminar Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luminar Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with LKQ and Luminar Technologies

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

The idea behind LKQ Corporation and Luminar Technologies 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.