Correlation Between UET United and LGI Homes

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Can any of the company-specific risk be diversified away by investing in both UET United 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 UET United and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between UET United Electronic and LGI Homes, you can compare the effects of market volatilities on UET United 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 UET United with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of UET United and LGI Homes.

Diversification Opportunities for UET United and LGI Homes

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between UET and LGI is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding UET United Electronic and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and UET United 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 UET United Electronic 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 UET United i.e., UET United and LGI Homes go up and down completely randomly.

Pair Corralation between UET United and LGI Homes

Assuming the 90 days trading horizon UET United Electronic is expected to generate 1.59 times more return on investment than LGI Homes. However, UET United is 1.59 times more volatile than LGI Homes. It trades about 0.03 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 per unit of risk. If you would invest  81.00  in UET United Electronic on September 18, 2024 and sell it today you would earn a total of  12.00  from holding UET United Electronic or generate 14.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

UET United Electronic  vs.  LGI Homes

 Performance 
       Timeline  
UET United Electronic 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in UET United Electronic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, UET United may actually be approaching a critical reversion point that can send shares even higher in January 2025.
LGI Homes 

Risk-Adjusted Performance

0 of 100

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

UET United and LGI Homes Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with UET United and LGI Homes

The main advantage of trading using opposite UET United and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UET United 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 UET United Electronic 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.
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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