Correlation Between NEO and LAMB
Can any of the company-specific risk be diversified away by investing in both NEO and LAMB 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 NEO and LAMB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEO and LAMB, you can compare the effects of market volatilities on NEO and LAMB 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 NEO with a short position of LAMB. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and LAMB.
Diversification Opportunities for NEO and LAMB
Poor diversification
The 3 months correlation between NEO and LAMB is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NEO and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and NEO 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 NEO are associated (or correlated) with LAMB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAMB has no effect on the direction of NEO i.e., NEO and LAMB go up and down completely randomly.
Pair Corralation between NEO and LAMB
Assuming the 90 days trading horizon NEO is expected to generate 1.03 times more return on investment than LAMB. However, NEO is 1.03 times more volatile than LAMB. It trades about 0.11 of its potential returns per unit of risk. LAMB is currently generating about -0.18 per unit of risk. If you would invest 1,571 in NEO on January 26, 2024 and sell it today you would earn a total of 235.00 from holding NEO or generate 14.96% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
NEO vs. LAMB
Performance |
Timeline |
NEO |
LAMB |
NEO and LAMB Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NEO and LAMB
The main advantage of trading using opposite NEO and LAMB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO position performs unexpectedly, LAMB 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 will offset losses from the drop in LAMB's long position.The idea behind NEO and LAMB 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 Global Correlations module to find global opportunities by holding instruments from different markets.
Other Complementary Tools
Global Correlations Find global opportunities by holding instruments from different markets | |
Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules | |
Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
AI Investment Finder Use AI to screen and filter profitable investment opportunities | |
Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals |