Correlation Between LAMB and Orbs
Can any of the company-specific risk be diversified away by investing in both LAMB and Orbs 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 and Orbs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LAMB and Orbs, you can compare the effects of market volatilities on LAMB and Orbs 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 with a short position of Orbs. Check out your portfolio center. Please also check ongoing floating volatility patterns of LAMB and Orbs.
Diversification Opportunities for LAMB and Orbs
Poor diversification
The 3 months correlation between LAMB and Orbs is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding LAMB and Orbs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orbs and LAMB 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 are associated (or correlated) with Orbs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orbs has no effect on the direction of LAMB i.e., LAMB and Orbs go up and down completely randomly.
Pair Corralation between LAMB and Orbs
Assuming the 90 days trading horizon LAMB is expected to generate 1.65 times more return on investment than Orbs. However, LAMB is 1.65 times more volatile than Orbs. It trades about 0.08 of its potential returns per unit of risk. Orbs is currently generating about 0.02 per unit of risk. If you would invest 0.18 in LAMB on January 25, 2024 and sell it today you would earn a total of 0.50 from holding LAMB or generate 272.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LAMB vs. Orbs
Performance |
| Timeline |
| LAMB |
| Orbs |
LAMB and Orbs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LAMB and Orbs
The main advantage of trading using opposite LAMB and Orbs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LAMB position performs unexpectedly, Orbs 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 Orbs will offset losses from the drop in Orbs' long position.The idea behind LAMB and Orbs 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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