Correlation Between LGI Homes and Avanos Medical
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Avanos Medical 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 Avanos Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Avanos Medical, you can compare the effects of market volatilities on LGI Homes and Avanos Medical 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 Avanos Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Avanos Medical.
Diversification Opportunities for LGI Homes and Avanos Medical
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between LGI and Avanos is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Avanos Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanos Medical 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 Avanos Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanos Medical has no effect on the direction of LGI Homes i.e., LGI Homes and Avanos Medical go up and down completely randomly.
Pair Corralation between LGI Homes and Avanos Medical
Assuming the 90 days trading horizon LGI Homes is expected to generate 1.19 times more return on investment than Avanos Medical. However, LGI Homes is 1.19 times more volatile than Avanos Medical. It trades about 0.0 of its potential returns per unit of risk. Avanos Medical is currently generating about -0.02 per unit of risk. If you would invest 11,900 in LGI Homes on August 31, 2024 and sell it today you would lose (1,500) from holding LGI Homes or give up 12.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.74% |
| Values | Daily Returns |
LGI Homes vs. Avanos Medical
Performance |
| Timeline |
| LGI Homes |
| Avanos Medical |
LGI Homes and Avanos Medical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Avanos Medical
The main advantage of trading using opposite LGI Homes and Avanos Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Avanos Medical 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 Avanos Medical will offset losses from the drop in Avanos Medical's long position.The idea behind LGI Homes and Avanos Medical 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.| Avanos Medical vs. Apple Inc | Avanos Medical vs. Apple Inc | Avanos Medical vs. Apple Inc | Avanos Medical vs. Apple Inc |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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