Correlation Between LAMB and Quant
Can any of the company-specific risk be diversified away by investing in both LAMB and Quant 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 Quant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LAMB and Quant, you can compare the effects of market volatilities on LAMB and Quant 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 Quant. Check out your portfolio center. Please also check ongoing floating volatility patterns of LAMB and Quant.
Diversification Opportunities for LAMB and Quant
Poor diversification
The 3 months correlation between LAMB and Quant is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding LAMB and Quant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quant 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 Quant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quant has no effect on the direction of LAMB i.e., LAMB and Quant go up and down completely randomly.
Pair Corralation between LAMB and Quant
Assuming the 90 days trading horizon LAMB is expected to generate 2.44 times more return on investment than Quant. However, LAMB is 2.44 times more volatile than Quant. It trades about 0.16 of its potential returns per unit of risk. Quant is currently generating about 0.04 per unit of risk. If you would invest 0.42 in LAMB on January 24, 2024 and sell it today you would earn a total of 0.29 from holding LAMB or generate 69.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.67% |
| Values | Daily Returns |
LAMB vs. Quant
Performance |
| Timeline |
| LAMB |
| Quant |
LAMB and Quant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LAMB and Quant
The main advantage of trading using opposite LAMB and Quant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LAMB position performs unexpectedly, Quant 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 Quant will offset losses from the drop in Quant's long position.The idea behind LAMB and Quant 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 Stocks Directory module to find actively traded stocks across global markets.
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