Correlation Between Lamb Weston and Darling Ingredients

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

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

Diversification Opportunities for Lamb Weston and Darling Ingredients

0.74

Correlation Coefficient

Lamb Weston  Darling Ingredients

Poor diversification

The 3 months correlation between Lamb and Darling is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients and Lamb Weston 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 Lamb Weston Holdings are associated (or correlated) with Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Lamb Weston i.e., Lamb Weston and Darling Ingredients go up and down completely randomly.

Pair Corralation between Lamb Weston and Darling Ingredients

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 0.9 times more return on investment than Darling Ingredients. However, Lamb Weston Holdings is 1.11 times less risky than Darling Ingredients. It trades about 0.14 of its potential returns per unit of risk. Darling Ingredients is currently generating about 0.07 per unit of risk. If you would invest  6,357  in Lamb Weston Holdings on September 12, 2024 and sell it today you would earn a total of  1,139  from holding Lamb Weston Holdings or generate 17.92% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  Darling Ingredients

Lamb Weston Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lamb Weston Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Lamb Weston showed solid returns over the last few months and may actually be approaching a breakup point.

Darling Ingredients

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darling Ingredients are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Darling Ingredients may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lamb Weston and Darling Ingredients

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

The idea behind Lamb Weston Holdings and Darling Ingredients 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.