Correlation Between Shrapnel and LAMB

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

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

Diversification Opportunities for Shrapnel and LAMB

0.74

Correlation Coefficient

Shrapnel  LAMB

Poor diversification

The 3 months correlation between Shrapnel and LAMB is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shrapnel and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and Shrapnel 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 Shrapnel 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 Shrapnel i.e., Shrapnel and LAMB go up and down completely randomly.

Pair Corralation between Shrapnel and LAMB

Assuming the 90 days trading horizon Shrapnel is expected to generate 4.09 times more return on investment than LAMB. However, Shrapnel is 4.09 times more volatile than LAMB. It trades about 0.04 of its potential returns per unit of risk. LAMB is currently generating about 0.08 per unit of risk. If you would invest  0.00  in Shrapnel on February 7, 2024 and sell it today you would earn a total of  14.00  from holding Shrapnel or generate 9.223372036854776E16% return on investment over 90 days.

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

Shrapnel  vs.  LAMB

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

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

LAMB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LAMB are ranked lower than 15 (%) 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 Shrapnel and LAMB

The main advantage of trading using opposite Shrapnel and LAMB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shrapnel 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 Shrapnel 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.