Correlation Between Arthur J and Lamar Advertising

Can any of the company-specific risk be diversified away by investing in both Arthur J and Lamar Advertising 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 Arthur J and Lamar Advertising into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arthur J Gallagher and Lamar Advertising, you can compare the effects of market volatilities on Arthur J and Lamar Advertising 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 Arthur J with a short position of Lamar Advertising. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arthur J and Lamar Advertising.

Diversification Opportunities for Arthur J and Lamar Advertising

0.08

Correlation Coefficient

Arthur J  Lamar Advertising

Significant diversification

The 3 months correlation between Arthur and Lamar is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Arthur J Gallagher and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising and Arthur J 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 Arthur J Gallagher are associated (or correlated) with Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of Arthur J i.e., Arthur J and Lamar Advertising go up and down completely randomly.

Pair Corralation between Arthur J and Lamar Advertising

Assuming the 90 days horizon Arthur J Gallagher is expected to generate 0.94 times more return on investment than Lamar Advertising. However, Arthur J Gallagher is 1.06 times less risky than Lamar Advertising. It trades about 0.13 of its potential returns per unit of risk. Lamar Advertising is currently generating about -0.1 per unit of risk. If you would invest  27,009  in Arthur J Gallagher on December 21, 2024 and sell it today you would earn a total of  3,491  from holding Arthur J Gallagher or generate 12.93% return on investment over 90 days.

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

Arthur J Gallagher  vs.  Lamar Advertising

Arthur J Gallagher

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arthur J reported solid returns over the last few months and may actually be approaching a breakup point.

Lamar Advertising

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Arthur J and Lamar Advertising

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

The idea behind Arthur J Gallagher and Lamar Advertising 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.