Correlation Between LAMB and MCO
Can any of the company-specific risk be diversified away by investing in both LAMB and MCO 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 LAMB and MCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LAMB and MCO, you can compare the effects of market volatilities on LAMB and MCO 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 LAMB with a short position of MCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of LAMB and MCO.
Diversification Opportunities for LAMB and MCO
Significant diversification
The 3 months correlation between LAMB and MCO is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding LAMB and MCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCO and LAMB 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 LAMB are associated (or correlated) with MCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCO has no effect on the direction of LAMB i.e., LAMB and MCO go up and down completely randomly.
Pair Corralation between LAMB and MCO
Assuming the 90 days trading horizon LAMB is expected to generate 4.54 times less return on investment than MCO. But when comparing it to its historical volatility, LAMB is 8.36 times less risky than MCO. It trades about 0.23 of its potential returns per unit of risk. MCO is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 84.00 in MCO on January 25, 2024 and sell it today you would earn a total of 1,241 from holding MCO or generate 1477.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LAMB vs. MCO
Performance |
| Timeline |
| LAMB |
| MCO |
LAMB and MCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LAMB and MCO
The main advantage of trading using opposite LAMB and MCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LAMB position performs unexpectedly, MCO 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 MCO will offset losses from the drop in MCO's long position.The idea behind LAMB and MCO 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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