Correlation Between Auto Trader and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Auto Trader and LGI Homes 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 Auto Trader and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Auto Trader Group and LGI Homes, you can compare the effects of market volatilities on Auto Trader and LGI Homes 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 Auto Trader with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and LGI Homes.
Diversification Opportunities for Auto Trader and LGI Homes
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Auto and LGI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Auto Trader 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 Auto Trader Group are associated (or correlated) with LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of Auto Trader i.e., Auto Trader and LGI Homes go up and down completely randomly.
Pair Corralation between Auto Trader and LGI Homes
Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.58 times more return on investment than LGI Homes. However, Auto Trader Group is 1.74 times less risky than LGI Homes. It trades about 0.07 of its potential returns per unit of risk. LGI Homes is currently generating about -0.01 per unit of risk. If you would invest 797.00 in Auto Trader Group on September 12, 2024 and sell it today you would earn a total of 203.00 from holding Auto Trader Group or generate 25.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Auto Trader Group vs. LGI Homes
Performance |
| Timeline |
| Auto Trader Group |
| LGI Homes |
Auto Trader and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Auto Trader and LGI Homes
The main advantage of trading using opposite Auto Trader and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, LGI Homes 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 LGI Homes will offset losses from the drop in LGI Homes' long position.| Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc |
| LGI Homes vs. UNIVERSAL MUSIC GROUP | LGI Homes vs. VITEC SOFTWARE GROUP | LGI Homes vs. Zoom Video Communications | LGI Homes vs. MAGIC SOFTWARE ENTR |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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