Correlation Between Park Electrochemical and Loar Holdings

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

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

Diversification Opportunities for Park Electrochemical and Loar Holdings

0.85

Correlation Coefficient

Park Electrochemical  Loar Holdings

Very poor diversification

The 3 months correlation between Park and Loar is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and Loar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loar Holdings and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with Loar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loar Holdings has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and Loar Holdings go up and down completely randomly.

Pair Corralation between Park Electrochemical and Loar Holdings

Considering the 90-day investment horizon Park Electrochemical is expected to generate 0.67 times more return on investment than Loar Holdings. However, Park Electrochemical is 1.5 times less risky than Loar Holdings. It trades about -0.02 of its potential returns per unit of risk. Loar Holdings is currently generating about -0.08 per unit of risk. If you would invest  1,420  in Park Electrochemical on December 23, 2024 and sell it today you would lose (36.00) from holding Park Electrochemical or give up 2.54% of portfolio value over 90 days.

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

Park Electrochemical  vs.  Loar Holdings

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Loar Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Loar Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Park Electrochemical and Loar Holdings

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

The idea behind Park Electrochemical and Loar Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.