Correlation Between Cadence Design and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Cadence Design 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 Cadence Design and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cadence Design Systems and LGI Homes, you can compare the effects of market volatilities on Cadence Design 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 Cadence Design with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and LGI Homes.
Diversification Opportunities for Cadence Design and LGI Homes
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Cadence and LGI is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Cadence Design 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 Cadence Design Systems 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 Cadence Design i.e., Cadence Design and LGI Homes go up and down completely randomly.
Pair Corralation between Cadence Design and LGI Homes
Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.49 times more return on investment than LGI Homes. However, Cadence Design is 1.49 times more volatile than LGI Homes. It trades about 0.31 of its potential returns per unit of risk. LGI Homes is currently generating about 0.04 per unit of risk. If you would invest 25,128 in Cadence Design Systems on August 25, 2024 and sell it today you would earn a total of 6,059 from holding Cadence Design Systems or generate 24.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cadence Design Systems vs. LGI Homes
Performance |
| Timeline |
| Cadence Design Systems |
| LGI Homes |
Cadence Design and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cadence Design and LGI Homes
The main advantage of trading using opposite Cadence Design and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design 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.| Cadence Design vs. OLB Group | Cadence Design vs. Friendable | Cadence Design vs. Enfusion | Cadence Design vs. Trust Stamp |
| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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