Correlation Between Mesa Laboratories and Lifeloc Technologies

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

By analyzing existing cross correlation between Mesa Laboratories and Lifeloc Technologies, you can compare the effects of market volatilities on Mesa Laboratories and Lifeloc Technologies 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 Mesa Laboratories with a short position of Lifeloc Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mesa Laboratories and Lifeloc Technologies.

Diversification Opportunities for Mesa Laboratories and Lifeloc Technologies

0.19

Correlation Coefficient

Mesa Laboratories  Lifeloc Technologies

Average diversification

The 3 months correlation between Mesa and Lifeloc is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Laboratories and Lifeloc Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeloc Technologies and Mesa Laboratories 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 Mesa Laboratories are associated (or correlated) with Lifeloc Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeloc Technologies has no effect on the direction of Mesa Laboratories i.e., Mesa Laboratories and Lifeloc Technologies go up and down completely randomly.

Pair Corralation between Mesa Laboratories and Lifeloc Technologies

Given the investment horizon of 90 days Mesa Laboratories is expected to generate 1.03 times more return on investment than Lifeloc Technologies. However, Mesa Laboratories is 1.03 times more volatile than Lifeloc Technologies. It trades about 0.03 of its potential returns per unit of risk. Lifeloc Technologies is currently generating about -0.1 per unit of risk. If you would invest  12,277  in Mesa Laboratories on September 14, 2024 and sell it today you would earn a total of  439.00  from holding Mesa Laboratories or generate 3.58% return on investment over 90 days.

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

Mesa Laboratories  vs.  Lifeloc Technologies

Mesa Laboratories

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Laboratories are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Mesa Laboratories may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lifeloc Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeloc Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Mesa Laboratories and Lifeloc Technologies

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

The idea behind Mesa Laboratories and Lifeloc Technologies 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.