Correlation Between Franklin Electric and Luxfer Holdings

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

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

Diversification Opportunities for Franklin Electric and Luxfer Holdings

0.54

Correlation Coefficient

Franklin Electric  Luxfer Holdings

Very weak diversification

The 3 months correlation between Franklin and Luxfer is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co 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 Franklin Electric 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 Franklin Electric Co 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 Franklin Electric i.e., Franklin Electric and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Franklin Electric and Luxfer Holdings

Given the investment horizon of 90 days Franklin Electric is expected to generate 6.98 times less return on investment than Luxfer Holdings. But when comparing it to its historical volatility, Franklin Electric Co is 1.52 times less risky than Luxfer Holdings. It trades about 0.04 of its potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,111  in Luxfer Holdings PLC on August 30, 2024 and sell it today you would earn a total of  369.00  from holding Luxfer Holdings PLC or generate 33.21% return on investment over 90 days.

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

Franklin Electric Co  vs.  Luxfer Holdings PLC

Franklin Electric

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Electric Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Luxfer Holdings PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Luxfer Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Franklin Electric and Luxfer Holdings

The main advantage of trading using opposite Franklin Electric and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Electric 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 Franklin Electric Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.