Correlation Between Lamb Weston and Premier Foods

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

Diversification Opportunities for Lamb Weston and Premier Foods

0.51

Correlation Coefficient

Lamb Weston  Premier Foods

Very weak diversification

The 3 months correlation between Lamb and Premier is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Premier Foods Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods Plc 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods Plc has no effect on the direction of Lamb Weston i.e., Lamb Weston and Premier Foods go up and down completely randomly.

Pair Corralation between Lamb Weston and Premier Foods

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 1.65 times more return on investment than Premier Foods. However, Lamb Weston is 1.65 times more volatile than Premier Foods Plc. It trades about 0.21 of its potential returns per unit of risk. Premier Foods Plc is currently generating about 0.11 per unit of risk. If you would invest  6,139  in Lamb Weston Holdings on September 4, 2024 and sell it today you would earn a total of  1,695  from holding Lamb Weston Holdings or generate 27.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Lamb Weston Holdings  vs.  Premier Foods Plc

Lamb Weston Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lamb Weston Holdings are ranked lower than 16 (%) 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.

Premier Foods Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Premier Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lamb Weston and Premier Foods

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

The idea behind Lamb Weston Holdings and Premier Foods Plc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.