Correlation Between Limbach Holdings and Advanced Drainage

Can any of the company-specific risk be diversified away by investing in both Limbach Holdings and Advanced Drainage 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 Limbach Holdings and Advanced Drainage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Limbach Holdings and Advanced Drainage Systems, you can compare the effects of market volatilities on Limbach Holdings and Advanced Drainage 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 Limbach Holdings with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limbach Holdings and Advanced Drainage.

Diversification Opportunities for Limbach Holdings and Advanced Drainage

0.68

Correlation Coefficient

Limbach Holdings  Advanced Drainage

Poor diversification

The 3 months correlation between Limbach and Advanced is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Limbach Holdings and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Limbach Holdings 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 Limbach Holdings are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Limbach Holdings i.e., Limbach Holdings and Advanced Drainage go up and down completely randomly.

Pair Corralation between Limbach Holdings and Advanced Drainage

Considering the 90-day investment horizon Limbach Holdings is expected to generate 2.4 times more return on investment than Advanced Drainage. However, Limbach Holdings is 2.4 times more volatile than Advanced Drainage Systems. It trades about 0.0 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.03 per unit of risk. If you would invest  8,838  in Limbach Holdings on December 26, 2024 and sell it today you would lose (643.00) from holding Limbach Holdings or give up 7.28% of portfolio value over 90 days.

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

Limbach Holdings  vs.  Advanced Drainage Systems

Limbach Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Limbach Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Limbach Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Advanced Drainage Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Advanced Drainage 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 Limbach Holdings and Advanced Drainage

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

The idea behind Limbach Holdings and Advanced Drainage Systems 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.