Correlation Between Caledonia Investments and LPKF Laser

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

By analyzing existing cross correlation between Caledonia Investments and LPKF Laser Electronics, you can compare the effects of market volatilities on Caledonia Investments and LPKF Laser 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 Caledonia Investments with a short position of LPKF Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caledonia Investments and LPKF Laser.

Diversification Opportunities for Caledonia Investments and LPKF Laser

-0.45

Correlation Coefficient

Caledonia Investments  LPKF Laser

Very good diversification

The 3 months correlation between Caledonia and LPKF is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Investments and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics and Caledonia Investments 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 Caledonia Investments are associated (or correlated) with LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of Caledonia Investments i.e., Caledonia Investments and LPKF Laser go up and down completely randomly.

Pair Corralation between Caledonia Investments and LPKF Laser

Assuming the 90 days trading horizon Caledonia Investments is expected to generate 0.57 times more return on investment than LPKF Laser. However, Caledonia Investments is 1.76 times less risky than LPKF Laser. It trades about 0.07 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about -0.07 per unit of risk. If you would invest  353,000  in Caledonia Investments on December 24, 2024 and sell it today you would earn a total of  17,000  from holding Caledonia Investments or generate 4.82% return on investment over 90 days.

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

Caledonia Investments  vs.  LPKF Laser Electronics

Caledonia Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caledonia Investments is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

LPKF Laser Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days LPKF Laser Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Caledonia Investments and LPKF Laser

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

The idea behind Caledonia Investments and LPKF Laser Electronics 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 Commodity Directory module to find actively traded commodities issued by global exchanges.