Correlation Between LGI Homes and AbbVie
Can any of the company-specific risk be diversified away by investing in both LGI Homes and AbbVie 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 LGI Homes and AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and AbbVie Inc, you can compare the effects of market volatilities on LGI Homes and AbbVie 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 LGI Homes with a short position of AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and AbbVie.
Diversification Opportunities for LGI Homes and AbbVie
Good diversification
The 3 months correlation between LGI and AbbVie is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and LGI Homes 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 LGI Homes are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of LGI Homes i.e., LGI Homes and AbbVie go up and down completely randomly.
Pair Corralation between LGI Homes and AbbVie
Assuming the 90 days trading horizon LGI Homes is expected to generate 1.82 times more return on investment than AbbVie. However, LGI Homes is 1.82 times more volatile than AbbVie Inc. It trades about 0.02 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.03 per unit of risk. If you would invest 9,380 in LGI Homes on September 3, 2024 and sell it today you would earn a total of 1,020 from holding LGI Homes or generate 10.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. AbbVie Inc
Performance |
| Timeline |
| LGI Homes |
| AbbVie Inc |
LGI Homes and AbbVie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and AbbVie
The main advantage of trading using opposite LGI Homes and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.The idea behind LGI Homes and AbbVie Inc 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.| AbbVie vs. TRAVEL LEISURE DL 01 | AbbVie vs. LGI Homes | AbbVie vs. Tri Pointe Homes | AbbVie vs. 24SEVENOFFICE GROUP AB |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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