Correlation Between Twin Disc and Laser Photonics

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

By analyzing existing cross correlation between Twin Disc Incorporated and Laser Photonics, you can compare the effects of market volatilities on Twin Disc and Laser Photonics 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 Twin Disc with a short position of Laser Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Twin Disc and Laser Photonics.

Diversification Opportunities for Twin Disc and Laser Photonics

0.24

Correlation Coefficient

Twin Disc  Laser Photonics

Modest diversification

The 3 months correlation between Twin and Laser is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Twin Disc Incorporated and Laser Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laser Photonics and Twin Disc 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 Twin Disc Incorporated are associated (or correlated) with Laser Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laser Photonics has no effect on the direction of Twin Disc i.e., Twin Disc and Laser Photonics go up and down completely randomly.

Pair Corralation between Twin Disc and Laser Photonics

Given the investment horizon of 90 days Twin Disc is expected to generate 89.59 times less return on investment than Laser Photonics. But when comparing it to its historical volatility, Twin Disc Incorporated is 7.93 times less risky than Laser Photonics. It trades about 0.01 of its potential returns per unit of risk. Laser Photonics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  329.00  in Laser Photonics on September 2, 2024 and sell it today you would earn a total of  230.00  from holding Laser Photonics or generate 69.91% return on investment over 90 days.

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

Twin Disc Incorporated  vs.  Laser Photonics

Twin Disc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Twin Disc Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Twin Disc is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Laser Photonics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Laser Photonics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Laser Photonics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Twin Disc and Laser Photonics

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

The idea behind Twin Disc Incorporated and Laser Photonics 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.