Correlation Between LGI Homes and Ribbon Communications
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Ribbon Communications 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 Ribbon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Ribbon Communications, you can compare the effects of market volatilities on LGI Homes and Ribbon Communications 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 Ribbon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Ribbon Communications.
Diversification Opportunities for LGI Homes and Ribbon Communications
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between LGI and Ribbon is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of LGI Homes i.e., LGI Homes and Ribbon Communications go up and down completely randomly.
Pair Corralation between LGI Homes and Ribbon Communications
Assuming the 90 days trading horizon LGI Homes is expected to generate 2.44 times less return on investment than Ribbon Communications. But when comparing it to its historical volatility, LGI Homes is 1.31 times less risky than Ribbon Communications. It trades about 0.02 of its potential returns per unit of risk. Ribbon Communications is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 248.00 in Ribbon Communications on September 3, 2024 and sell it today you would earn a total of 120.00 from holding Ribbon Communications or generate 48.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Ribbon Communications
Performance |
| Timeline |
| LGI Homes |
| Ribbon Communications |
LGI Homes and Ribbon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Ribbon Communications
The main advantage of trading using opposite LGI Homes and Ribbon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Ribbon Communications 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 Ribbon Communications will offset losses from the drop in Ribbon Communications' long position.The idea behind LGI Homes and Ribbon Communications 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.| Ribbon Communications vs. Lamar Advertising | Ribbon Communications vs. Datang International Power | Ribbon Communications vs. Automatic Data Processing | Ribbon Communications vs. MICRONIC MYDATA |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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