Correlation Between LGI Homes and Croghan Bancshares

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Can any of the company-specific risk be diversified away by investing in both LGI Homes and Croghan Bancshares 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 Croghan Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Croghan Bancshares, you can compare the effects of market volatilities on LGI Homes and Croghan Bancshares 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 Croghan Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Croghan Bancshares.

Diversification Opportunities for LGI Homes and Croghan Bancshares

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  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between LGI and Croghan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Croghan Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Croghan Bancshares 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 Croghan Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Croghan Bancshares has no effect on the direction of LGI Homes i.e., LGI Homes and Croghan Bancshares go up and down completely randomly.

Pair Corralation between LGI Homes and Croghan Bancshares

Given the investment horizon of 90 days LGI Homes is expected to under-perform the Croghan Bancshares. In addition to that, LGI Homes is 1.57 times more volatile than Croghan Bancshares. It trades about -0.1 of its total potential returns per unit of risk. Croghan Bancshares is currently generating about -0.05 per unit of volatility. If you would invest  4,901  in Croghan Bancshares on October 22, 2024 and sell it today you would lose (151.00) from holding Croghan Bancshares or give up 3.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy97.5%
ValuesDaily Returns

LGI Homes  vs.  Croghan Bancshares

 Performance 
       Timeline  
LGI Homes 

Risk-Adjusted Performance

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Over the last 90 days LGI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.
Croghan Bancshares 

Risk-Adjusted Performance

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Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Croghan Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Croghan Bancshares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

LGI Homes and Croghan Bancshares Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LGI Homes and Croghan Bancshares

The main advantage of trading using opposite LGI Homes and Croghan Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Croghan Bancshares 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 Croghan Bancshares will offset losses from the drop in Croghan Bancshares' long position.
The idea behind LGI Homes and Croghan Bancshares 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.
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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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