Correlation Between LGI Homes and Essentra Plc
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Essentra 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 Essentra 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 Essentra plc, you can compare the effects of market volatilities on LGI Homes and Essentra 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 Essentra Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Essentra Plc.
Diversification Opportunities for LGI Homes and Essentra Plc
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between LGI and Essentra is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc 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 Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of LGI Homes i.e., LGI Homes and Essentra Plc go up and down completely randomly.
Pair Corralation between LGI Homes and Essentra Plc
Assuming the 90 days trading horizon LGI Homes is expected to generate 1.02 times more return on investment than Essentra Plc. However, LGI Homes is 1.02 times more volatile than Essentra plc. It trades about 0.02 of its potential returns per unit of risk. Essentra plc is currently generating about 0.0 per unit of risk. If you would invest 8,770 in LGI Homes on September 14, 2024 and sell it today you would earn a total of 880.00 from holding LGI Homes or generate 10.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Essentra plc
Performance |
| Timeline |
| LGI Homes |
| Essentra plc |
LGI Homes and Essentra Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Essentra Plc
The main advantage of trading using opposite LGI Homes and Essentra Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Essentra 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 Essentra Plc will offset losses from the drop in Essentra Plc's long position.The idea behind LGI Homes and Essentra plc 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.| Essentra Plc vs. MI Homes | Essentra Plc vs. PennantPark Investment | Essentra Plc vs. LGI Homes | Essentra Plc vs. INVITATION HOMES DL |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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