Correlation Between Darling Ingredients and Lancaster Colony

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

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

Diversification Opportunities for Darling Ingredients and Lancaster Colony

0.26

Correlation Coefficient

Darling Ingredients  Lancaster Colony

Modest diversification

The 3 months correlation between Darling and Lancaster is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Darling Ingredients and Lancaster Colony in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancaster Colony and Darling Ingredients 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 Darling Ingredients 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 Darling Ingredients i.e., Darling Ingredients and Lancaster Colony go up and down completely randomly.

Pair Corralation between Darling Ingredients and Lancaster Colony

Considering the 90-day investment horizon Darling Ingredients is expected to generate 1.28 times more return on investment than Lancaster Colony. However, Darling Ingredients is 1.28 times more volatile than Lancaster Colony. It trades about -0.04 of its potential returns per unit of risk. Lancaster Colony is currently generating about -0.16 per unit of risk. If you would invest  3,557  in Darling Ingredients on October 6, 2024 and sell it today you would lose (88.00) from holding Darling Ingredients or give up 2.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Darling Ingredients  vs.  Lancaster Colony

Darling Ingredients

Risk-Adjusted Performance

0 of 100

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 relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Lancaster Colony

Risk-Adjusted Performance

0 of 100

Very Weak

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 sound basic indicators, Lancaster Colony is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Darling Ingredients and Lancaster Colony

The main advantage of trading using opposite Darling Ingredients and Lancaster Colony positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darling Ingredients 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 Darling Ingredients 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.