Correlation Between LGI Homes and BP PLC
Can any of the company-specific risk be diversified away by investing in both LGI Homes and BP PLC 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 BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and BP PLC DZ1, you can compare the effects of market volatilities on LGI Homes and BP PLC 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 BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and BP PLC.
Diversification Opportunities for LGI Homes and BP PLC
Weak diversification
The 3 months correlation between LGI and BPE is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 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 BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC DZ1 has no effect on the direction of LGI Homes i.e., LGI Homes and BP PLC go up and down completely randomly.
Pair Corralation between LGI Homes and BP PLC
Assuming the 90 days trading horizon LGI Homes is expected to under-perform the BP PLC. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.13 times less risky than BP PLC. The stock trades about -0.1 of its potential returns per unit of risk. The BP PLC DZ1 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 434.00 in BP PLC DZ1 on September 15, 2024 and sell it today you would earn a total of 38.00 from holding BP PLC DZ1 or generate 8.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. BP PLC DZ1
Performance |
| Timeline |
| LGI Homes |
| BP PLC DZ1 |
LGI Homes and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and BP PLC
The main advantage of trading using opposite LGI Homes and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, BP PLC 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 BP PLC will offset losses from the drop in BP PLC's long position.The idea behind LGI Homes and BP PLC DZ1 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.| BP PLC vs. Autohome ADR | BP PLC vs. Aedas Homes SA | BP PLC vs. LGI Homes | BP PLC vs. Penta Ocean Construction Co |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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