Correlation Between DATA and LAMB

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

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

Diversification Opportunities for DATA and LAMB

0.83

Correlation Coefficient

DATA  LAMB

Very poor diversification

The 3 months correlation between DATA and LAMB is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding DATA and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and DATA 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 DATA are associated (or correlated) with LAMB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAMB has no effect on the direction of DATA i.e., DATA and LAMB go up and down completely randomly.

Pair Corralation between DATA and LAMB

Assuming the 90 days trading horizon DATA is expected to generate 1.92 times less return on investment than LAMB. But when comparing it to its historical volatility, DATA is 1.28 times less risky than LAMB. It trades about 0.04 of its potential returns per unit of risk. LAMB is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.36  in LAMB on January 25, 2024 and sell it today you would earn a total of  0.33  from holding LAMB or generate 91.55% return on investment over 90 days.

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

DATA  vs.  LAMB

DATA

Risk-Adjusted Performance

9 of 100

OK

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

LAMB

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LAMB are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LAMB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and LAMB

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

The idea behind DATA and LAMB 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.