Correlation Between Lamb Weston and SW Seed

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

Diversification Opportunities for Lamb Weston and SW Seed

-0.41

Correlation Coefficient

Lamb Weston  SW Seed

Very good diversification

The 3 months correlation between Lamb and SANW is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and SW Seed Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SW Seed Company 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 SW Seed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SW Seed Company has no effect on the direction of Lamb Weston i.e., Lamb Weston and SW Seed go up and down completely randomly.

Pair Corralation between Lamb Weston and SW Seed

Allowing for the 90-day total investment horizon Lamb Weston is expected to generate 3.05 times less return on investment than SW Seed. But when comparing it to its historical volatility, Lamb Weston Holdings is 6.27 times less risky than SW Seed. It trades about 0.2 of its potential returns per unit of risk. SW Seed Company is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  497.00  in SW Seed Company on September 1, 2024 and sell it today you would earn a total of  208.00  from holding SW Seed Company or generate 41.85% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  SW Seed Company

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.

SW Seed Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SW Seed Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SW Seed showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lamb Weston and SW Seed

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

The idea behind Lamb Weston Holdings and SW Seed Company 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.