Correlation Between BG Foods and Lamb Weston

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Can any of the company-specific risk be diversified away by investing in both BG Foods and Lamb Weston 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 BG Foods and Lamb Weston into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BG Foods and Lamb Weston Holdings, you can compare the effects of market volatilities on BG Foods and Lamb Weston 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 BG Foods with a short position of Lamb Weston. Check out your portfolio center. Please also check ongoing floating volatility patterns of BG Foods and Lamb Weston.

Diversification Opportunities for BG Foods and Lamb Weston

-0.1
  Correlation Coefficient

Good diversification

The 3 months correlation between BGS and Lamb is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding BG Foods and Lamb Weston Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamb Weston Holdings and BG Foods 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 BG Foods are associated (or correlated) with Lamb Weston. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamb Weston Holdings has no effect on the direction of BG Foods i.e., BG Foods and Lamb Weston go up and down completely randomly.

Pair Corralation between BG Foods and Lamb Weston

Considering the 90-day investment horizon BG Foods is expected to generate 4.69 times more return on investment than Lamb Weston. However, BG Foods is 4.69 times more volatile than Lamb Weston Holdings. It trades about 0.1 of its potential returns per unit of risk. Lamb Weston Holdings is currently generating about 0.04 per unit of risk. If you would invest  971.00  in BG Foods on December 20, 2023 and sell it today you would earn a total of  85.00  from holding BG Foods or generate 8.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

BG Foods  vs.  Lamb Weston Holdings

 Performance 
       Timeline  
BG Foods 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in BG Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, BG Foods is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
Lamb Weston Holdings 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Lamb Weston Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lamb Weston is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

BG Foods and Lamb Weston Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BG Foods and Lamb Weston

The main advantage of trading using opposite BG Foods and Lamb Weston positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BG Foods position performs unexpectedly, Lamb Weston 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 Lamb Weston will offset losses from the drop in Lamb Weston's long position.
The idea behind BG Foods and Lamb Weston Holdings 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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