Correlation Between JAR and LAMB
Can any of the company-specific risk be diversified away by investing in both JAR 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 JAR and LAMB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between JAR and LAMB, you can compare the effects of market volatilities on JAR 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 JAR with a short position of LAMB. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAR and LAMB.
Diversification Opportunities for JAR and LAMB
Significant diversification
The 3 months correlation between JAR and LAMB is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding JAR and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and JAR 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 JAR 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 JAR i.e., JAR and LAMB go up and down completely randomly.
Pair Corralation between JAR and LAMB
Assuming the 90 days trading horizon JAR is expected to generate 3.33 times less return on investment than LAMB. But when comparing it to its historical volatility, JAR is 2.46 times less risky than LAMB. It trades about 0.19 of its potential returns per unit of risk. LAMB is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 0.13 in LAMB on September 4, 2024 and sell it today you would earn a total of 0.10 from holding LAMB or generate 77.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
JAR vs. LAMB
Performance |
| Timeline |
| JAR |
| LAMB |
JAR and LAMB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with JAR and LAMB
The main advantage of trading using opposite JAR and LAMB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAR 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 JAR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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