Correlation Between Insteel Industries and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Insteel Industries 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 Insteel Industries and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insteel Industries and LGI Homes, you can compare the effects of market volatilities on Insteel Industries 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 Insteel Industries with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insteel Industries and LGI Homes.
Diversification Opportunities for Insteel Industries and LGI Homes
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Insteel and LGI is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Insteel Industries 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 Insteel Industries 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 Insteel Industries i.e., Insteel Industries and LGI Homes go up and down completely randomly.
Pair Corralation between Insteel Industries and LGI Homes
Given the investment horizon of 90 days Insteel Industries is expected to generate 1.26 times less return on investment than LGI Homes. But when comparing it to its historical volatility, Insteel Industries is 1.22 times less risky than LGI Homes. It trades about 0.02 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 9,740 in LGI Homes on September 12, 2024 and sell it today you would earn a total of 865.00 from holding LGI Homes or generate 8.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insteel Industries vs. LGI Homes
Performance |
| Timeline |
| Insteel Industries |
| LGI Homes |
Insteel Industries and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insteel Industries and LGI Homes
The main advantage of trading using opposite Insteel Industries and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insteel Industries 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.| Insteel Industries vs. Mayville Engineering Co | Insteel Industries vs. Gulf Island Fabrication | Insteel Industries vs. ESAB Corp | Insteel Industries vs. Northwest Pipe |
| 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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