Correlation Between Lancaster Colony and Associated British

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

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

Diversification Opportunities for Lancaster Colony and Associated British

-0.45

Correlation Coefficient

Lancaster Colony  Associated British

Very good diversification

The 3 months correlation between Lancaster and Associated is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lancaster Colony and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and Lancaster Colony 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 Lancaster Colony are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Lancaster Colony i.e., Lancaster Colony and Associated British go up and down completely randomly.

Pair Corralation between Lancaster Colony and Associated British

Given the investment horizon of 90 days Lancaster Colony is expected to generate 0.89 times more return on investment than Associated British. However, Lancaster Colony is 1.12 times less risky than Associated British. It trades about 0.09 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.11 per unit of risk. If you would invest  16,992  in Lancaster Colony on September 3, 2024 and sell it today you would earn a total of  1,592  from holding Lancaster Colony or generate 9.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Lancaster Colony  vs.  Associated British Foods

Lancaster Colony

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lancaster Colony are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Lancaster Colony may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lancaster Colony and Associated British

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

The idea behind Lancaster Colony and Associated British Foods 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.