Correlation Between Loma Negra and Lafargeholcim

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

By analyzing existing cross correlation between Loma Negra Compania and Lafargeholcim Ltd ADR, you can compare the effects of market volatilities on Loma Negra and Lafargeholcim 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 Loma Negra with a short position of Lafargeholcim. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loma Negra and Lafargeholcim.

Diversification Opportunities for Loma Negra and Lafargeholcim

-0.63

Correlation Coefficient

Loma Negra  Lafargeholcim

Excellent diversification

The 3 months correlation between Loma and Lafargeholcim is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Loma Negra Compania and Lafargeholcim Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lafargeholcim ADR and Loma Negra 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 Loma Negra Compania are associated (or correlated) with Lafargeholcim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lafargeholcim ADR has no effect on the direction of Loma Negra i.e., Loma Negra and Lafargeholcim go up and down completely randomly.

Pair Corralation between Loma Negra and Lafargeholcim

Given the investment horizon of 90 days Loma Negra Compania is expected to under-perform the Lafargeholcim. In addition to that, Loma Negra is 2.06 times more volatile than Lafargeholcim Ltd ADR. It trades about -0.03 of its total potential returns per unit of risk. Lafargeholcim Ltd ADR is currently generating about 0.13 per unit of volatility. If you would invest  1,926  in Lafargeholcim Ltd ADR on December 30, 2024 and sell it today you would earn a total of  258.00  from holding Lafargeholcim Ltd ADR or generate 13.4% return on investment over 90 days.

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

Loma Negra Compania  vs.  Lafargeholcim Ltd ADR

Loma Negra Compania

Risk-Adjusted Performance

Very Weak

Over the last 90 days Loma Negra Compania has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lafargeholcim ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lafargeholcim Ltd ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Lafargeholcim showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loma Negra and Lafargeholcim

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

The idea behind Loma Negra Compania and Lafargeholcim Ltd 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.

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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.