Correlation Between Liberty Defense and NAPCO Security

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

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

Diversification Opportunities for Liberty Defense and NAPCO Security

-0.56

Correlation Coefficient

Liberty Defense  NAPCO Security

Excellent diversification

The 3 months correlation between Liberty and NAPCO is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Defense Holdings and NAPCO Security Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAPCO Security Techn and Liberty Defense 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 Liberty Defense Holdings are associated (or correlated) with NAPCO Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAPCO Security Techn has no effect on the direction of Liberty Defense i.e., Liberty Defense and NAPCO Security go up and down completely randomly.

Pair Corralation between Liberty Defense and NAPCO Security

Assuming the 90 days horizon Liberty Defense Holdings is expected to generate 2.01 times more return on investment than NAPCO Security. However, Liberty Defense is 2.01 times more volatile than NAPCO Security Technologies. It trades about 0.11 of its potential returns per unit of risk. NAPCO Security Technologies is currently generating about -0.15 per unit of risk. If you would invest  59.00  in Liberty Defense Holdings on December 29, 2024 and sell it today you would earn a total of  23.00  from holding Liberty Defense Holdings or generate 38.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Liberty Defense Holdings  vs.  NAPCO Security Technologies

Liberty Defense Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Defense Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Liberty Defense reported solid returns over the last few months and may actually be approaching a breakup point.

NAPCO Security Techn

Risk-Adjusted Performance

Very Weak

Over the last 90 days NAPCO Security Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Liberty Defense and NAPCO Security

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

The idea behind Liberty Defense Holdings and NAPCO Security Technologies 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.