Correlation Between LAMB and DODO

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

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

Diversification Opportunities for LAMB and DODO

0.79

Correlation Coefficient

LAMB  DODO

Poor diversification

The 3 months correlation between LAMB and DODO is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding LAMB and DODO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DODO 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 DODO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DODO has no effect on the direction of LAMB i.e., LAMB and DODO go up and down completely randomly.

Pair Corralation between LAMB and DODO

Assuming the 90 days trading horizon LAMB is expected to under-perform the DODO. In addition to that, LAMB is 1.03 times more volatile than DODO. It trades about -0.18 of its total potential returns per unit of risk. DODO is currently generating about -0.14 per unit of volatility. If you would invest  28.00  in DODO on January 25, 2024 and sell it today you would lose (8.00) from holding DODO or give up 28.57% of portfolio value over 90 days.

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

LAMB  vs.  DODO

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.

DODO

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DODO are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DODO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LAMB and DODO

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

The idea behind LAMB and DODO 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.