Correlation Between Luxfer Holdings and Kadant

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

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

Diversification Opportunities for Luxfer Holdings and Kadant

0.8

Correlation Coefficient

Luxfer Holdings  Kadant

Very poor diversification

The 3 months correlation between Luxfer and Kadant is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Luxfer Holdings PLC and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc and Luxfer Holdings 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 Luxfer Holdings PLC are associated (or correlated) with Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Luxfer Holdings i.e., Luxfer Holdings and Kadant go up and down completely randomly.

Pair Corralation between Luxfer Holdings and Kadant

Given the investment horizon of 90 days Luxfer Holdings PLC is expected to generate 1.32 times more return on investment than Kadant. However, Luxfer Holdings is 1.32 times more volatile than Kadant Inc. It trades about 0.17 of its potential returns per unit of risk. Kadant Inc is currently generating about 0.21 per unit of risk. If you would invest  1,111  in Luxfer Holdings PLC on August 30, 2024 and sell it today you would earn a total of  369.00  from holding Luxfer Holdings PLC or generate 33.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Luxfer Holdings PLC  vs.  Kadant Inc

Luxfer Holdings PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Luxfer Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Kadant Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Kadant demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luxfer Holdings and Kadant

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

The idea behind Luxfer Holdings PLC and Kadant Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.