Correlation Between LGI Homes and Western Digital
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Western Digital 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 Western Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Western Digital, you can compare the effects of market volatilities on LGI Homes and Western Digital 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 Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Western Digital.
Diversification Opportunities for LGI Homes and Western Digital
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between LGI and Western is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of LGI Homes i.e., LGI Homes and Western Digital go up and down completely randomly.
Pair Corralation between LGI Homes and Western Digital
Given the investment horizon of 90 days LGI Homes is expected to generate 0.88 times more return on investment than Western Digital. However, LGI Homes is 1.13 times less risky than Western Digital. It trades about 0.11 of its potential returns per unit of risk. Western Digital is currently generating about 0.04 per unit of risk. If you would invest 10,461 in LGI Homes on August 29, 2024 and sell it today you would earn a total of 558.00 from holding LGI Homes or generate 5.33% 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. Western Digital
Performance |
| Timeline |
| LGI Homes |
| Western Digital |
LGI Homes and Western Digital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Western Digital
The main advantage of trading using opposite LGI Homes and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Western Digital 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 Western Digital will offset losses from the drop in Western Digital'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 |
| Western Digital vs. NetApp Inc | Western Digital vs. Logitech International SA | Western Digital vs. HP Inc | Western Digital vs. Dell Technologies |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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