Correlation Between Eltek and Luxfer Holdings

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

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

Diversification Opportunities for Eltek and Luxfer Holdings

0.44

Correlation Coefficient

Eltek  Luxfer Holdings

Very weak diversification

The 3 months correlation between Eltek and Luxfer is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Eltek 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 Eltek 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 Eltek 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 Eltek i.e., Eltek and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Eltek and Luxfer Holdings

Given the investment horizon of 90 days Eltek is expected to generate 12.56 times less return on investment than Luxfer Holdings. In addition to that, Eltek is 1.53 times more volatile than Luxfer Holdings PLC. It trades about 0.0 of its total potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.08 per unit of volatility. If you would invest  806.00  in Luxfer Holdings PLC on September 21, 2024 and sell it today you would earn a total of  507.00  from holding Luxfer Holdings PLC or generate 62.9% return on investment over 90 days.

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

Eltek  vs.  Luxfer Holdings PLC

Eltek

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Eltek is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Luxfer Holdings PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Luxfer Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eltek and Luxfer Holdings

The main advantage of trading using opposite Eltek and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek 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 Eltek 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.