Correlation Between Applied Digital and Lancashire Holdings

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Can any of the company-specific risk be diversified away by investing in both Applied Digital and Lancashire Holdings 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 Applied Digital and Lancashire Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Digital and Lancashire Holdings, you can compare the effects of market volatilities on Applied Digital and Lancashire Holdings 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 Applied Digital with a short position of Lancashire Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Digital and Lancashire Holdings.

Diversification Opportunities for Applied Digital and Lancashire Holdings

AppliedLancashireDiversified AwayAppliedLancashireDiversified Away100%
-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between Applied and Lancashire is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Applied Digital and Lancashire Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings and Applied Digital 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 Applied Digital are associated (or correlated) with Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of Applied Digital i.e., Applied Digital and Lancashire Holdings go up and down completely randomly.

Pair Corralation between Applied Digital and Lancashire Holdings

Given the investment horizon of 90 days Applied Digital is expected to under-perform the Lancashire Holdings. In addition to that, Applied Digital is 3.67 times more volatile than Lancashire Holdings. It trades about -0.17 of its total potential returns per unit of risk. Lancashire Holdings is currently generating about 0.22 per unit of volatility. If you would invest  771.00  in Lancashire Holdings on October 6, 2024 and sell it today you would earn a total of  60.00  from holding Lancashire Holdings or generate 7.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Applied Digital  vs.  Lancashire Holdings

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -30-20-10010
JavaScript chart by amCharts 3.21.15APLD LCSHF
       Timeline  
Applied Digital 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Applied Digital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Applied Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan67891011
Lancashire Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lancashire Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Lancashire Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan7.588.5

Applied Digital and Lancashire Holdings Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-21.13-15.82-10.52-5.220.025.4611.0116.5622.12 0.0050.0100.0150.0200.0250.0300.035
JavaScript chart by amCharts 3.21.15APLD LCSHF
       Returns  

Pair Trading with Applied Digital and Lancashire Holdings

The main advantage of trading using opposite Applied Digital and Lancashire Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Digital position performs unexpectedly, Lancashire Holdings 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 Lancashire Holdings will offset losses from the drop in Lancashire Holdings' long position.
The idea behind Applied Digital and Lancashire Holdings 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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