Correlation Between International Consolidated and LPKF Laser

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

By analyzing existing cross correlation between International Consolidated Airlines and LPKF Laser Electronics, you can compare the effects of market volatilities on International Consolidated and LPKF Laser 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 International Consolidated with a short position of LPKF Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and LPKF Laser.

Diversification Opportunities for International Consolidated and LPKF Laser

-0.04

Correlation Coefficient

International Consolidated  LPKF Laser

Good diversification

The 3 months correlation between International and LPKF is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of International Consolidated i.e., International Consolidated and LPKF Laser go up and down completely randomly.

Pair Corralation between International Consolidated and LPKF Laser

Assuming the 90 days trading horizon International Consolidated Airlines is expected to generate 1.08 times more return on investment than LPKF Laser. However, International Consolidated is 1.08 times more volatile than LPKF Laser Electronics. It trades about 0.32 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about 0.06 per unit of risk. If you would invest  18,315  in International Consolidated Airlines on September 4, 2024 and sell it today you would earn a total of  7,865  from holding International Consolidated Airlines or generate 42.94% return on investment over 90 days.

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

International Consolidated Air  vs.  LPKF Laser Electronics

International Consolidated

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, International Consolidated exhibited solid returns over the last few months and may actually be approaching a breakup point.

LPKF Laser Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LPKF Laser Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LPKF Laser may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with International Consolidated and LPKF Laser

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

The idea behind International Consolidated Airlines and LPKF Laser Electronics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.