Correlation Between LKQ and AEye

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

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

Diversification Opportunities for LKQ and AEye

-0.44

Correlation Coefficient

LKQ  AEye

Very good diversification

The 3 months correlation between LKQ and AEye is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding LKQ Corp. and AEye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEye Inc 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 AEye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEye Inc has no effect on the direction of LKQ i.e., LKQ and AEye go up and down completely randomly.

Pair Corralation between LKQ and AEye

Considering the 90-day investment horizon LKQ Corporation is expected to under-perform the AEye. But the stock apears to be less risky and, when comparing its historical volatility, LKQ Corporation is 15.14 times less risky than AEye. The stock trades about -0.17 of its potential returns per unit of risk. The AEye Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.50  in AEye Inc on March 13, 2024 and sell it today you would lose (0.17) from holding AEye Inc or give up 11.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

LKQ Corp.  vs.  AEye Inc

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 uncertain 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.

AEye Inc

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with LKQ and AEye

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

The idea behind LKQ Corporation and AEye Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.