Correlation Between Lamb Weston and Central Garden

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

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

Diversification Opportunities for Lamb Weston and Central Garden

0.07

Correlation Coefficient

Lamb Weston  Central Garden

Significant diversification

The 3 months correlation between Lamb and Central is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and Lamb Weston 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 Weston Holdings are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Lamb Weston i.e., Lamb Weston and Central Garden go up and down completely randomly.

Pair Corralation between Lamb Weston and Central Garden

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to under-perform the Central Garden. In addition to that, Lamb Weston is 1.52 times more volatile than Central Garden Pet. It trades about -0.03 of its total potential returns per unit of risk. Central Garden Pet is currently generating about 0.02 per unit of volatility. If you would invest  3,351  in Central Garden Pet on September 13, 2024 and sell it today you would earn a total of  101.00  from holding Central Garden Pet or generate 3.01% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  Central Garden Pet

Lamb Weston Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lamb Weston Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Lamb Weston showed solid returns over the last few months and may actually be approaching a breakup point.

Central Garden Pet

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lamb Weston and Central Garden

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

The idea behind Lamb Weston Holdings and Central Garden Pet 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.