Correlation Between CNA Financial and Luxfer Holdings

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

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

Diversification Opportunities for CNA Financial and Luxfer Holdings

0.35

Correlation Coefficient

CNA Financial  Luxfer Holdings

Weak diversification

The 3 months correlation between CNA and Luxfer is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CNA Financial and Luxfer Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luxfer Holdings PLC and CNA Financial 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 CNA Financial are associated (or correlated) with Luxfer Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luxfer Holdings PLC has no effect on the direction of CNA Financial i.e., CNA Financial and Luxfer Holdings go up and down completely randomly.

Pair Corralation between CNA Financial and Luxfer Holdings

Considering the 90-day investment horizon CNA Financial is expected to generate 0.58 times more return on investment than Luxfer Holdings. However, CNA Financial is 1.74 times less risky than Luxfer Holdings. It trades about 0.08 of its potential returns per unit of risk. Luxfer Holdings PLC is currently generating about -0.04 per unit of risk. If you would invest  4,668  in CNA Financial on December 18, 2024 and sell it today you would earn a total of  266.00  from holding CNA Financial or generate 5.7% return on investment over 90 days.

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

CNA Financial  vs.  Luxfer Holdings PLC

CNA Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNA Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, CNA Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Luxfer Holdings PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Luxfer Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Luxfer Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CNA Financial and Luxfer Holdings

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

The idea behind CNA Financial and Luxfer Holdings PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.