Correlation Between United Fire and Luxfer Holdings

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

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

Diversification Opportunities for United Fire and Luxfer Holdings

0.45

Correlation Coefficient

United Fire  Luxfer Holdings

Very weak diversification

The 3 months correlation between United and Luxfer is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group 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 United Fire 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 United Fire Group 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 United Fire i.e., United Fire and Luxfer Holdings go up and down completely randomly.

Pair Corralation between United Fire and Luxfer Holdings

Given the investment horizon of 90 days United Fire Group is expected to under-perform the Luxfer Holdings. But the stock apears to be less risky and, when comparing its historical volatility, United Fire Group is 1.24 times less risky than Luxfer Holdings. The stock trades about -0.47 of its potential returns per unit of risk. The Luxfer Holdings PLC is currently generating about -0.31 of returns per unit of risk over similar time horizon. If you would invest  1,410  in Luxfer Holdings PLC on October 10, 2024 and sell it today you would lose (142.00) from holding Luxfer Holdings PLC or give up 10.07% of portfolio value over 90 days.

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

United Fire Group  vs.  Luxfer Holdings PLC

United Fire Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Luxfer Holdings PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Luxfer Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with United Fire and Luxfer Holdings

The main advantage of trading using opposite United Fire and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire 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 United Fire Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.