Correlation Between Alarm Holdings and NLIGHT

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

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

Diversification Opportunities for Alarm Holdings and NLIGHT

-0.03

Correlation Coefficient

Alarm Holdings  NLIGHT

Good diversification

The 3 months correlation between Alarm and NLIGHT is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc and Alarm 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 Alarm Holdings are associated (or correlated) with NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Alarm Holdings i.e., Alarm Holdings and NLIGHT go up and down completely randomly.

Pair Corralation between Alarm Holdings and NLIGHT

Given the investment horizon of 90 days Alarm Holdings is expected to under-perform the NLIGHT. But the stock apears to be less risky and, when comparing its historical volatility, Alarm Holdings is 2.65 times less risky than NLIGHT. The stock trades about -0.08 of its potential returns per unit of risk. The nLIGHT Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,857  in nLIGHT Inc on July 10, 2025 and sell it today you would earn a total of  1,130  from holding nLIGHT Inc or generate 60.85% return on investment over 90 days.

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

Alarm Holdings  vs.  nLIGHT Inc

Alarm Holdings

Risk-Adjusted Performance

Weakest

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

nLIGHT Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in nLIGHT Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, NLIGHT reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alarm Holdings and NLIGHT

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

The idea behind Alarm Holdings and nLIGHT 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.