Correlation Between LGI Homes and Magnachip Semiconductor
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Magnachip Semiconductor 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 Magnachip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Magnachip Semiconductor, you can compare the effects of market volatilities on LGI Homes and Magnachip Semiconductor 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 Magnachip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Magnachip Semiconductor.
Diversification Opportunities for LGI Homes and Magnachip Semiconductor
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between LGI and Magnachip is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Magnachip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnachip Semiconductor 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 Magnachip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnachip Semiconductor has no effect on the direction of LGI Homes i.e., LGI Homes and Magnachip Semiconductor go up and down completely randomly.
Pair Corralation between LGI Homes and Magnachip Semiconductor
Assuming the 90 days trading horizon LGI Homes is expected to generate 0.63 times more return on investment than Magnachip Semiconductor. However, LGI Homes is 1.59 times less risky than Magnachip Semiconductor. It trades about 0.17 of its potential returns per unit of risk. Magnachip Semiconductor is currently generating about -0.13 per unit of risk. If you would invest 9,650 in LGI Homes on August 29, 2024 and sell it today you would earn a total of 950.00 from holding LGI Homes or generate 9.84% 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. Magnachip Semiconductor
Performance |
| Timeline |
| LGI Homes |
| Magnachip Semiconductor |
LGI Homes and Magnachip Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Magnachip Semiconductor
The main advantage of trading using opposite LGI Homes and Magnachip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Magnachip Semiconductor 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 Magnachip Semiconductor will offset losses from the drop in Magnachip Semiconductor's long position.The idea behind LGI Homes and Magnachip Semiconductor 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.| Magnachip Semiconductor vs. New Residential Investment | Magnachip Semiconductor vs. CDL INVESTMENT | Magnachip Semiconductor vs. Jacquet Metal Service | Magnachip Semiconductor vs. DIVERSIFIED ROYALTY |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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