Correlation Between Advanced Drainage and Limbach Holdings

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

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

Diversification Opportunities for Advanced Drainage and Limbach Holdings

-0.52

Correlation Coefficient

Advanced Drainage  Limbach Holdings

Excellent diversification

The 3 months correlation between Advanced and Limbach is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Limbach Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Limbach Holdings and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with Limbach Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Limbach Holdings has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Limbach Holdings go up and down completely randomly.

Pair Corralation between Advanced Drainage and Limbach Holdings

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Limbach Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Drainage Systems is 1.46 times less risky than Limbach Holdings. The stock trades about -0.06 of its potential returns per unit of risk. The Limbach Holdings is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,036  in Limbach Holdings on August 31, 2024 and sell it today you would earn a total of  3,840  from holding Limbach Holdings or generate 63.62% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Limbach Holdings

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Limbach Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Limbach Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, Limbach Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Drainage and Limbach Holdings

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

The idea behind Advanced Drainage Systems and Limbach Holdings 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.