Correlation Between LPKF Laser and Automatic Data

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

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

Diversification Opportunities for LPKF Laser and Automatic Data

-0.48

Correlation Coefficient

LPKF Laser  Automatic Data

Very good diversification

The 3 months correlation between LPKF and Automatic is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding LPKF Laser Electronics and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and LPKF Laser 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 LPKF Laser Electronics are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of LPKF Laser i.e., LPKF Laser and Automatic Data go up and down completely randomly.

Pair Corralation between LPKF Laser and Automatic Data

Assuming the 90 days horizon LPKF Laser Electronics is expected to generate 4.78 times more return on investment than Automatic Data. However, LPKF Laser is 4.78 times more volatile than Automatic Data Processing. It trades about 0.06 of its potential returns per unit of risk. Automatic Data Processing is currently generating about -0.05 per unit of risk. If you would invest  850.00  in LPKF Laser Electronics on October 5, 2024 and sell it today you would earn a total of  27.00  from holding LPKF Laser Electronics or generate 3.18% return on investment over 90 days.

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

LPKF Laser Electronics  vs.  Automatic Data Processing

LPKF Laser Electronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LPKF Laser Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, LPKF Laser is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Automatic Data Processing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LPKF Laser and Automatic Data

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

The idea behind LPKF Laser Electronics and Automatic Data Processing 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.