Correlation Between Associated British and Lancaster Colony

Can any of the company-specific risk be diversified away by investing in both Associated British and Lancaster Colony 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 Associated British and Lancaster Colony into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Associated British Foods and Lancaster Colony, you can compare the effects of market volatilities on Associated British and Lancaster Colony 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 Associated British with a short position of Lancaster Colony. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Lancaster Colony.

Diversification Opportunities for Associated British and Lancaster Colony

0.26

Correlation Coefficient

Associated British  Lancaster Colony

Modest diversification

The 3 months correlation between Associated and Lancaster is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Lancaster Colony in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancaster Colony and Associated British 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 Associated British Foods are associated (or correlated) with Lancaster Colony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancaster Colony has no effect on the direction of Associated British i.e., Associated British and Lancaster Colony go up and down completely randomly.

Pair Corralation between Associated British and Lancaster Colony

Assuming the 90 days horizon Associated British is expected to generate 1.63 times less return on investment than Lancaster Colony. In addition to that, Associated British is 1.18 times more volatile than Lancaster Colony. It trades about 0.08 of its total potential returns per unit of risk. Lancaster Colony is currently generating about 0.15 per unit of volatility. If you would invest  16,057  in Lancaster Colony on May 6, 2025 and sell it today you would earn a total of  1,220  from holding Lancaster Colony or generate 7.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	62.9%
Values	Daily Returns

Associated British Foods  vs.  Lancaster Colony

Associated British Foods

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Associated British may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Lancaster Colony

Risk-Adjusted Performance

Good

Over the last 90 days Lancaster Colony has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, Lancaster Colony may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Associated British and Lancaster Colony

The main advantage of trading using opposite Associated British and Lancaster Colony positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British position performs unexpectedly, Lancaster Colony 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 Lancaster Colony will offset losses from the drop in Lancaster Colony's long position.

The idea behind Associated British Foods and Lancaster Colony 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 Transaction History module to view history of all your transactions and understand their impact on performance.