Correlation Between Luna Innovations and Electro Sensors

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

By analyzing existing cross correlation between Luna Innovations Incorporated and Electro Sensors, you can compare the effects of market volatilities on Luna Innovations and Electro Sensors 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 Luna Innovations with a short position of Electro Sensors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luna Innovations and Electro Sensors.

Diversification Opportunities for Luna Innovations and Electro Sensors

-0.31

Correlation Coefficient

Luna Innovations  Electro Sensors

Very good diversification

The 3 months correlation between Luna and Electro is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Luna Innovations Incorporated and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors and Luna Innovations 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 Luna Innovations Incorporated are associated (or correlated) with Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of Luna Innovations i.e., Luna Innovations and Electro Sensors go up and down completely randomly.

Pair Corralation between Luna Innovations and Electro Sensors

Given the investment horizon of 90 days Luna Innovations is expected to generate 1.31 times less return on investment than Electro Sensors. In addition to that, Luna Innovations is 1.48 times more volatile than Electro Sensors. It trades about 0.09 of its total potential returns per unit of risk. Electro Sensors is currently generating about 0.18 per unit of volatility. If you would invest  395.00  in Electro Sensors on September 2, 2024 and sell it today you would earn a total of  36.00  from holding Electro Sensors or generate 9.11% return on investment over 90 days.

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

Luna Innovations Incorporated  vs.  Electro Sensors

Luna Innovations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luna Innovations Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Electro Sensors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Electro Sensors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luna Innovations and Electro Sensors

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

The idea behind Luna Innovations Incorporated and Electro Sensors 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 CEOs Directory module to screen CEOs from public companies around the world.