Correlation Between LGI Homes and ECD Automotive
Can any of the company-specific risk be diversified away by investing in both LGI Homes and ECD Automotive 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 ECD Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and ECD Automotive Design, you can compare the effects of market volatilities on LGI Homes and ECD Automotive 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 ECD Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and ECD Automotive.
Diversification Opportunities for LGI Homes and ECD Automotive
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between LGI and ECD is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design 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 ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of LGI Homes i.e., LGI Homes and ECD Automotive go up and down completely randomly.
Pair Corralation between LGI Homes and ECD Automotive
Given the investment horizon of 90 days LGI Homes is expected to under-perform the ECD Automotive. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 10.99 times less risky than ECD Automotive. The stock trades about -0.1 of its potential returns per unit of risk. The ECD Automotive Design is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1.65 in ECD Automotive Design on November 18, 2024 and sell it today you would lose (0.10) from holding ECD Automotive Design or give up 6.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 39.34% |
| Values | Daily Returns |
LGI Homes vs. ECD Automotive Design
Performance |
| Timeline |
| LGI Homes |
| ECD Automotive Design |
LGI Homes and ECD Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and ECD Automotive
The main advantage of trading using opposite LGI Homes and ECD Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, ECD Automotive 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 ECD Automotive will offset losses from the drop in ECD Automotive'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 |
| ECD Automotive vs. Village Super Market | ECD Automotive vs. United Natural Foods | ECD Automotive vs. Northstar Clean Technologies | ECD Automotive vs. Sligro Food Group |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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