Correlation Between MWAT and LAMB

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

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

Diversification Opportunities for MWAT and LAMB

-0.43

Correlation Coefficient

MWAT  LAMB

Very good diversification

The 3 months correlation between MWAT and LAMB is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding MWAT and LAMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAMB and MWAT 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 MWAT are associated (or correlated) with LAMB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAMB has no effect on the direction of MWAT i.e., MWAT and LAMB go up and down completely randomly.

Pair Corralation between MWAT and LAMB

If you would invest  0.18  in LAMB on September 1, 2024 and sell it today you would earn a total of  0.05  from holding LAMB or generate 24.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.54%
Values	Daily Returns

MWAT  vs.  LAMB

MWAT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MWAT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MWAT is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

LAMB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LAMB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, LAMB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MWAT and LAMB

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

The idea behind MWAT and LAMB 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.