Correlation Between Rackspace Technology and Luxfer Holdings

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

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

Diversification Opportunities for Rackspace Technology and Luxfer Holdings

0.57

Correlation Coefficient

Rackspace Technology  Luxfer Holdings

Very weak diversification

The 3 months correlation between Rackspace and Luxfer is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Rackspace Technology 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 Rackspace Technology 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 Rackspace Technology 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 Rackspace Technology i.e., Rackspace Technology and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Rackspace Technology and Luxfer Holdings

Considering the 90-day investment horizon Rackspace Technology is expected to generate 2.52 times more return on investment than Luxfer Holdings. However, Rackspace Technology is 2.52 times more volatile than Luxfer Holdings PLC. It trades about 0.12 of its potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.09 per unit of risk. If you would invest  240.00  in Rackspace Technology on September 4, 2024 and sell it today you would earn a total of  25.00  from holding Rackspace Technology or generate 10.42% return on investment over 90 days.

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

Rackspace Technology  vs.  Luxfer Holdings PLC

Rackspace Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rackspace Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rackspace Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Luxfer Holdings PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady 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 Rackspace Technology and Luxfer Holdings

The main advantage of trading using opposite Rackspace Technology and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rackspace Technology 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 Rackspace Technology 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.