Correlation Between Lamb Weston and Ingredion Incorporated

Can any of the company-specific risk be diversified away by investing in both Lamb Weston and Ingredion Incorporated 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 Ingredion Incorporated 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 Ingredion Incorporated, you can compare the effects of market volatilities on Lamb Weston and Ingredion Incorporated 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 Ingredion Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lamb Weston and Ingredion Incorporated.

Diversification Opportunities for Lamb Weston and Ingredion Incorporated

0.66

Correlation Coefficient

Lamb Weston  Ingredion Incorporated

Poor diversification

The 3 months correlation between Lamb and Ingredion is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Ingredion Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingredion Incorporated 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 Ingredion Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingredion Incorporated has no effect on the direction of Lamb Weston i.e., Lamb Weston and Ingredion Incorporated go up and down completely randomly.

Pair Corralation between Lamb Weston and Ingredion Incorporated

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 0.85 times more return on investment than Ingredion Incorporated. However, Lamb Weston Holdings is 1.18 times less risky than Ingredion Incorporated. It trades about 0.16 of its potential returns per unit of risk. Ingredion Incorporated is currently generating about 0.06 per unit of risk. If you would invest  6,357  in Lamb Weston Holdings on September 12, 2024 and sell it today you would earn a total of  1,223  from holding Lamb Weston Holdings or generate 19.24% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  Ingredion Incorporated

Lamb Weston Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lamb Weston Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Lamb Weston showed solid returns over the last few months and may actually be approaching a breakup point.

Ingredion Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ingredion Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, Ingredion Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lamb Weston and Ingredion Incorporated

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

The idea behind Lamb Weston Holdings and Ingredion Incorporated 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.