Correlation Between LGI Homes and Olympic Steel
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Olympic 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 Olympic 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 Olympic Steel, you can compare the effects of market volatilities on LGI Homes and Olympic 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 Olympic Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Olympic Steel.
Diversification Opportunities for LGI Homes and Olympic Steel
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between LGI and Olympic is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of LGI Homes i.e., LGI Homes and Olympic Steel go up and down completely randomly.
Pair Corralation between LGI Homes and Olympic Steel
Given the investment horizon of 90 days LGI Homes is expected to under-perform the Olympic Steel. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.12 times less risky than Olympic Steel. The stock trades about -0.02 of its potential returns per unit of risk. The Olympic Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,964 in Olympic Steel on September 14, 2024 and sell it today you would earn a total of 84.00 from holding Olympic Steel or generate 2.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Olympic Steel
Performance |
| Timeline |
| LGI Homes |
| Olympic Steel |
LGI Homes and Olympic Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Olympic Steel
The main advantage of trading using opposite LGI Homes and Olympic Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Olympic 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 Olympic Steel will offset losses from the drop in Olympic 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 |
| Olympic Steel vs. Fortitude Gold Corp | Olympic Steel vs. New Gold | Olympic Steel vs. Galiano Gold | Olympic Steel vs. GoldMining |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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