Correlation Between Digi International and Luxfer Holdings

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

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

Diversification Opportunities for Digi International and Luxfer Holdings

0.71

Correlation Coefficient

Digi International  Luxfer Holdings

Poor diversification

The 3 months correlation between Digi and Luxfer is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Digi International 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 Digi International 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 Digi International 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 Digi International i.e., Digi International and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Digi International and Luxfer Holdings

Given the investment horizon of 90 days Digi International is expected to generate 0.77 times more return on investment than Luxfer Holdings. However, Digi International is 1.29 times less risky than Luxfer Holdings. It trades about 0.17 of its potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.05 per unit of risk. If you would invest  2,693  in Digi International on September 20, 2024 and sell it today you would earn a total of  618.00  from holding Digi International or generate 22.95% return on investment over 90 days.

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

Digi International  vs.  Luxfer Holdings PLC

Digi International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Luxfer Holdings PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Luxfer Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Digi International and Luxfer Holdings

The main advantage of trading using opposite Digi International and Luxfer Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digi International 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 Digi International 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.