Correlation Between Adams Natural and Laudus Large

Can any of the company-specific risk be diversified away by investing in both Adams Natural and Laudus Large 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 Adams Natural and Laudus Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adams Natural Resources and Laudus Large Cap, you can compare the effects of market volatilities on Adams Natural and Laudus Large 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 Adams Natural with a short position of Laudus Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Natural and Laudus Large.

Diversification Opportunities for Adams Natural and Laudus Large

0.46

Correlation Coefficient

Adams Natural  Laudus Large

Very weak diversification

The 3 months correlation between Adams and Laudus is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Laudus Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laudus Large Cap and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Laudus Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laudus Large Cap has no effect on the direction of Adams Natural i.e., Adams Natural and Laudus Large go up and down completely randomly.

Pair Corralation between Adams Natural and Laudus Large

Considering the 90-day investment horizon Adams Natural is expected to generate 8.07 times less return on investment than Laudus Large. In addition to that, Adams Natural is 1.01 times more volatile than Laudus Large Cap. It trades about 0.02 of its total potential returns per unit of risk. Laudus Large Cap is currently generating about 0.19 per unit of volatility. If you would invest  2,583  in Laudus Large Cap on September 17, 2024 and sell it today you would earn a total of  304.00  from holding Laudus Large Cap or generate 11.77% return on investment over 90 days.

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

Adams Natural Resources  vs.  Laudus Large Cap

Adams Natural Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Laudus Large Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Laudus Large Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Laudus Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Adams Natural and Laudus Large

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

The idea behind Adams Natural Resources and Laudus Large Cap 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 Transaction History module to view history of all your transactions and understand their impact on performance.