Correlation Between Chemours and Luxfer Holdings

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

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

Diversification Opportunities for Chemours and Luxfer Holdings

0.57

Correlation Coefficient

Chemours  Luxfer Holdings

Very weak diversification

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

Pair Corralation between Chemours and Luxfer Holdings

Allowing for the 90-day total investment horizon Chemours is expected to generate 1.26 times less return on investment than Luxfer Holdings. In addition to that, Chemours is 1.18 times more volatile than Luxfer Holdings PLC. It trades about 0.09 of its total potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.14 per unit of volatility. If you would invest  1,141  in Luxfer Holdings PLC on September 3, 2024 and sell it today you would earn a total of  295.00  from holding Luxfer Holdings PLC or generate 25.85% return on investment over 90 days.

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

Chemours Co  vs.  Luxfer Holdings PLC

Chemours

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chemours Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Chemours exhibited solid returns over the last few months and may actually be approaching a breakup point.

Luxfer Holdings PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating 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 Chemours and Luxfer Holdings

The main advantage of trading using opposite Chemours and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chemours 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 Chemours Co 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.