Correlation Between Loma Negra and James Hardie

Can any of the company-specific risk be diversified away by investing in both Loma Negra and James Hardie 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 James Hardie 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 James Hardie Industries, you can compare the effects of market volatilities on Loma Negra and James Hardie 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 James Hardie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loma Negra and James Hardie.

Diversification Opportunities for Loma Negra and James Hardie

-0.21

Correlation Coefficient

Loma Negra  James Hardie

Very good diversification

The 3 months correlation between Loma and James is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Loma Negra Compania and James Hardie Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James Hardie Industries 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 James Hardie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James Hardie Industries has no effect on the direction of Loma Negra i.e., Loma Negra and James Hardie go up and down completely randomly.

Pair Corralation between Loma Negra and James Hardie

Given the investment horizon of 90 days Loma Negra Compania is expected to generate 1.44 times more return on investment than James Hardie. However, Loma Negra is 1.44 times more volatile than James Hardie Industries. It trades about -0.02 of its potential returns per unit of risk. James Hardie Industries is currently generating about -0.12 per unit of risk. If you would invest  1,131  in Loma Negra Compania on November 28, 2024 and sell it today you would lose (21.00) from holding Loma Negra Compania or give up 1.86% of portfolio value over 90 days.

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

Loma Negra Compania  vs.  James Hardie Industries

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 somewhat strong primary indicators, Loma Negra is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

James Hardie Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days James Hardie Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Loma Negra and James Hardie

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

The idea behind Loma Negra Compania and James Hardie Industries 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.