Correlation Between Lancaster Colony and BRF SA

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

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

Diversification Opportunities for Lancaster Colony and BRF SA

0.51

Correlation Coefficient

Lancaster Colony  BRF SA

Very weak diversification

The 3 months correlation between Lancaster and BRF is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lancaster Colony and BRF SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA ADR and Lancaster Colony 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 Lancaster Colony are associated (or correlated) with BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA ADR has no effect on the direction of Lancaster Colony i.e., Lancaster Colony and BRF SA go up and down completely randomly.

Pair Corralation between Lancaster Colony and BRF SA

Given the investment horizon of 90 days Lancaster Colony is expected to generate 0.65 times more return on investment than BRF SA. However, Lancaster Colony is 1.55 times less risky than BRF SA. It trades about -0.16 of its potential returns per unit of risk. BRF SA ADR is currently generating about -0.3 per unit of risk. If you would invest  18,415  in Lancaster Colony on October 6, 2024 and sell it today you would lose (1,066) from holding Lancaster Colony or give up 5.79% of portfolio value over 90 days.

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

Lancaster Colony  vs.  BRF SA ADR

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.

BRF SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRF SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, BRF SA is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lancaster Colony and BRF SA

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

The idea behind Lancaster Colony and BRF SA ADR 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.