Correlation Between LGI Homes and Benchmark Electronics
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Benchmark Electronics 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 Benchmark Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Benchmark Electronics, you can compare the effects of market volatilities on LGI Homes and Benchmark Electronics 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 Benchmark Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Benchmark Electronics.
Diversification Opportunities for LGI Homes and Benchmark Electronics
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGI and Benchmark is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of LGI Homes i.e., LGI Homes and Benchmark Electronics go up and down completely randomly.
Pair Corralation between LGI Homes and Benchmark Electronics
Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Benchmark Electronics. In addition to that, LGI Homes is 1.09 times more volatile than Benchmark Electronics. It trades about -0.11 of its total potential returns per unit of risk. Benchmark Electronics is currently generating about 0.01 per unit of volatility. If you would invest 3,610 in Benchmark Electronics on December 5, 2024 and sell it today you would lose (30.00) from holding Benchmark Electronics or give up 0.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.19% |
| Values | Daily Returns |
LGI Homes vs. Benchmark Electronics
Performance |
| Timeline |
| LGI Homes |
| Benchmark Electronics |
LGI Homes and Benchmark Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Benchmark Electronics
The main advantage of trading using opposite LGI Homes and Benchmark Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Benchmark Electronics 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 Benchmark Electronics will offset losses from the drop in Benchmark Electronics' long position.| LGI Homes vs. Fukuyama Transporting Co | LGI Homes vs. Transportadora de Gas | LGI Homes vs. Transport International Holdings | LGI Homes vs. ARISTOCRAT LEISURE |
| Benchmark Electronics vs. Monster Beverage Corp | Benchmark Electronics vs. THAI BEVERAGE | Benchmark Electronics vs. Check Point Software | Benchmark Electronics vs. Easy Software AG |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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