Correlation Between Autohome and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Autohome 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 Autohome and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Autohome ADR and LGI Homes, you can compare the effects of market volatilities on Autohome 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 Autohome with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autohome and LGI Homes.
Diversification Opportunities for Autohome and LGI Homes
Weak diversification
The 3 months correlation between Autohome and LGI is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Autohome ADR and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Autohome 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 Autohome ADR 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 Autohome i.e., Autohome and LGI Homes go up and down completely randomly.
Pair Corralation between Autohome and LGI Homes
Assuming the 90 days trading horizon Autohome ADR is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Autohome ADR is 1.17 times less risky than LGI Homes. The stock trades about -0.01 of its potential returns per unit of risk. The LGI Homes is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 9,650 in LGI Homes on August 27, 2024 and sell it today you would earn a total of 300.00 from holding LGI Homes or generate 3.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Autohome ADR vs. LGI Homes
Performance |
| Timeline |
| Autohome ADR |
| LGI Homes |
Autohome and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Autohome and LGI Homes
The main advantage of trading using opposite Autohome and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autohome 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.The idea behind Autohome ADR and LGI Homes 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..
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