Correlation Between Lamb Weston and Darling Ingredients

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

Diversification Opportunities for Lamb Weston and Darling Ingredients

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Lamb and Darling is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients 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 Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Lamb Weston i.e., Lamb Weston and Darling Ingredients go up and down completely randomly.

Pair Corralation between Lamb Weston and Darling Ingredients

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 0.59 times more return on investment than Darling Ingredients. However, Lamb Weston Holdings is 1.69 times less risky than Darling Ingredients. It trades about 0.07 of its potential returns per unit of risk. Darling Ingredients is currently generating about -0.02 per unit of risk. If you would invest  6,438  in Lamb Weston Holdings on December 30, 2023 and sell it today you would earn a total of  4,215  from holding Lamb Weston Holdings or generate 65.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Lamb Weston Holdings  vs.  Darling Ingredients

 Performance 
       Timeline  
Lamb Weston Holdings 

Risk-Adjusted Performance

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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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Darling Ingredients 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Darling Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Lamb Weston and Darling Ingredients Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lamb Weston and Darling Ingredients

The main advantage of trading using opposite Lamb Weston and Darling Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lamb Weston position performs unexpectedly, Darling Ingredients 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 Darling Ingredients will offset losses from the drop in Darling Ingredients' long position.
The idea behind Lamb Weston Holdings and Darling Ingredients 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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