Correlation Between GAIA and LAMB
Can any of the company-specific risk be diversified away by investing in both GAIA 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 GAIA and LAMB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GAIA and LAMB, you can compare the effects of market volatilities on GAIA 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 GAIA with a short position of LAMB. Check out your portfolio center. Please also check ongoing floating volatility patterns of GAIA and LAMB.
Diversification Opportunities for GAIA and LAMB
Good diversification
The 3 months correlation between GAIA and LAMB is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding GAIA and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and GAIA 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 GAIA 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 GAIA i.e., GAIA and LAMB go up and down completely randomly.
Pair Corralation between GAIA and LAMB
Assuming the 90 days trading horizon GAIA is expected to generate 1.57 times more return on investment than LAMB. However, GAIA is 1.57 times more volatile than LAMB. It trades about 0.08 of its potential returns per unit of risk. LAMB is currently generating about 0.0 per unit of risk. If you would invest 0.18 in GAIA on August 25, 2024 and sell it today you would earn a total of 0.01 from holding GAIA or generate 6.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GAIA vs. LAMB
Performance |
| Timeline |
| GAIA |
| LAMB |
GAIA and LAMB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GAIA and LAMB
The main advantage of trading using opposite GAIA and LAMB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GAIA 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 GAIA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges |