Correlation Between LGI Homes and Microsoft
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Microsoft, you can compare the effects of market volatilities on LGI Homes and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Microsoft.
Diversification Opportunities for LGI Homes and Microsoft
Modest diversification
The 3 months correlation between LGI and Microsoft is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of LGI Homes i.e., LGI Homes and Microsoft go up and down completely randomly.
Pair Corralation between LGI Homes and Microsoft
Assuming the 90 days trading horizon LGI Homes is expected to generate 4.47 times less return on investment than Microsoft. In addition to that, LGI Homes is 2.14 times more volatile than Microsoft. It trades about 0.01 of its total potential returns per unit of risk. Microsoft is currently generating about 0.08 per unit of volatility. If you would invest 27,409 in Microsoft on August 26, 2024 and sell it today you would earn a total of 12,386 from holding Microsoft or generate 45.19% 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. Microsoft
Performance |
| Timeline |
| LGI Homes |
| Microsoft |
LGI Homes and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Microsoft
The main advantage of trading using opposite LGI Homes and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| LGI Homes vs. KB HOME | LGI Homes vs. UNITED RENTALS | LGI Homes vs. Lendlease Group | LGI Homes vs. Addus HomeCare |
| Microsoft vs. Take Two Interactive Software | Microsoft vs. Alfa Financial Software | Microsoft vs. UPDATE SOFTWARE | Microsoft vs. LGI Homes |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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