Correlation Between Lamb Weston and Flowers Foods

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

Diversification Opportunities for Lamb Weston and Flowers Foods

-0.75

Correlation Coefficient

Lamb Weston  Flowers Foods

Pay attention - limited upside

The 3 months correlation between Lamb and Flowers is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Flowers Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flowers Foods 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 Flowers Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flowers Foods has no effect on the direction of Lamb Weston i.e., Lamb Weston and Flowers Foods go up and down completely randomly.

Pair Corralation between Lamb Weston and Flowers Foods

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 1.81 times more return on investment than Flowers Foods. However, Lamb Weston is 1.81 times more volatile than Flowers Foods. It trades about 0.2 of its potential returns per unit of risk. Flowers Foods is currently generating about -0.01 per unit of risk. If you would invest  6,143  in Lamb Weston Holdings on August 31, 2024 and sell it today you would earn a total of  1,528  from holding Lamb Weston Holdings or generate 24.87% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  Flowers Foods

Lamb Weston Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lamb Weston Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Lamb Weston showed solid returns over the last few months and may actually be approaching a breakup point.

Flowers Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flowers Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Flowers Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lamb Weston and Flowers Foods

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

The idea behind Lamb Weston Holdings and Flowers Foods 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..