Correlation Between Luxfer Holdings and Babcock Wilcox

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

Diversification Opportunities for Luxfer Holdings and Babcock Wilcox

-0.18

Correlation Coefficient

Luxfer Holdings  Babcock Wilcox

Good diversification

The 3 months correlation between Luxfer and Babcock is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Luxfer Holdings PLC and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Luxfer Holdings i.e., Luxfer Holdings and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Luxfer Holdings and Babcock Wilcox

Given the investment horizon of 90 days Luxfer Holdings PLC is expected to generate 0.33 times more return on investment than Babcock Wilcox. However, Luxfer Holdings PLC is 3.02 times less risky than Babcock Wilcox. It trades about 0.08 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about 0.01 per unit of risk. If you would invest  1,047  in Luxfer Holdings PLC on February 8, 2024 and sell it today you would earn a total of  87.00  from holding Luxfer Holdings PLC or generate 8.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Luxfer Holdings PLC  vs.  Babcock Wilcox Enterprises

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 unfluctuating technical and fundamental indicators, Luxfer Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Babcock Wilcox showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luxfer Holdings and Babcock Wilcox

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

The idea behind Luxfer Holdings PLC and Babcock Wilcox Enterprises 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.