Correlation Between LGI Homes and Algoma Steel
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Algoma Steel 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 Algoma Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Algoma Steel Group, you can compare the effects of market volatilities on LGI Homes and Algoma Steel 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 Algoma Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Algoma Steel.
Diversification Opportunities for LGI Homes and Algoma Steel
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between LGI and Algoma is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group 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 Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of LGI Homes i.e., LGI Homes and Algoma Steel go up and down completely randomly.
Pair Corralation between LGI Homes and Algoma Steel
Given the investment horizon of 90 days LGI Homes is expected to generate 2.63 times less return on investment than Algoma Steel. In addition to that, LGI Homes is 1.11 times more volatile than Algoma Steel Group. It trades about 0.02 of its total potential returns per unit of risk. Algoma Steel Group is currently generating about 0.06 per unit of volatility. If you would invest 585.00 in Algoma Steel Group on September 12, 2024 and sell it today you would earn a total of 427.00 from holding Algoma Steel Group or generate 72.99% 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. Algoma Steel Group
Performance |
| Timeline |
| LGI Homes |
| Algoma Steel Group |
LGI Homes and Algoma Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Algoma Steel
The main advantage of trading using opposite LGI Homes and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Algoma Steel 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 Algoma Steel will offset losses from the drop in Algoma Steel's long position.| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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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 Stocks Directory module to find actively traded stocks across global markets.
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