Can any of the company-specific risk be diversified away by investing in both Laboratory and Neogen 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 Laboratory and Neogen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Laboratory of and Neogen, you can compare the effects of market volatilities on Laboratory and Neogen 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 Laboratory with a short position of Neogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Laboratory and Neogen.
Diversification Opportunities for Laboratory and Neogen
The 3 months correlation between Laboratory and Neogen is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Laboratory of and Neogen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neogen and Laboratory 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 Laboratory of are associated (or correlated) with Neogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neogen has no effect on the direction of Laboratory i.e., Laboratory and Neogen go up and down completely randomly.
Allowing for the 90-day total investment horizon Laboratory of is expected to generate 0.49 times more return on investment than Neogen. However, Laboratory of is 2.04 times less risky than Neogen. It trades about -0.13 of its potential returns per unit of risk. Neogen is currently generating about -0.11 per unit of risk. If you would invest 21,700 in Laboratory of on March 6, 2024 and sell it today you would lose (2,199) from holding Laboratory of or give up 10.13% of portfolio value over 90 days.
Over the last 90 days Laboratory of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.
Over the last 90 days Neogen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.