Correlation Between Luxfer Holdings and Mueller Water

Can any of the company-specific risk be diversified away by investing in both Luxfer Holdings and Mueller Water 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 Mueller Water 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 Mueller Water Products, you can compare the effects of market volatilities on Luxfer Holdings and Mueller Water 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 Mueller Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luxfer Holdings and Mueller Water.

Diversification Opportunities for Luxfer Holdings and Mueller Water

0.86

Correlation Coefficient

Luxfer Holdings  Mueller Water

Very poor diversification

The 3 months correlation between Luxfer and Mueller is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Luxfer Holdings PLC and Mueller Water Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mueller Water Products 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 Mueller Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mueller Water Products has no effect on the direction of Luxfer Holdings i.e., Luxfer Holdings and Mueller Water go up and down completely randomly.

Pair Corralation between Luxfer Holdings and Mueller Water

Given the investment horizon of 90 days Luxfer Holdings PLC is expected to generate 1.57 times more return on investment than Mueller Water. However, Luxfer Holdings is 1.57 times more volatile than Mueller Water Products. It trades about 0.16 of its potential returns per unit of risk. Mueller Water Products is currently generating about 0.18 per unit of risk. If you would invest  1,141  in Luxfer Holdings PLC on August 31, 2024 and sell it today you would earn a total of  339.00  from holding Luxfer Holdings PLC or generate 29.71% return on investment over 90 days.

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

Luxfer Holdings PLC  vs.  Mueller Water Products

Luxfer Holdings PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luxfer Holdings PLC are ranked lower than 12 (%) 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.

Mueller Water Products

Risk-Adjusted Performance

14 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mueller Water Products are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Mueller Water sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luxfer Holdings and Mueller Water

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

The idea behind Luxfer Holdings PLC and Mueller Water Products 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 Valuation module to check real value of public entities based on technical and fundamental data.