Correlation Between Nordic Semiconductor and LGI Homes

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

Diversification Opportunities for Nordic Semiconductor and LGI Homes

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Nordic and LGI is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Nordic Semiconductor ASA and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Nordic Semiconductor 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 Nordic Semiconductor ASA are associated (or correlated) with LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of Nordic Semiconductor i.e., Nordic Semiconductor and LGI Homes go up and down completely randomly.

Pair Corralation between Nordic Semiconductor and LGI Homes

Assuming the 90 days horizon Nordic Semiconductor ASA is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Nordic Semiconductor ASA is 1.28 times less risky than LGI Homes. The stock trades about -0.28 of its potential returns per unit of risk. The LGI Homes is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,650  in LGI Homes on August 29, 2024 and sell it today you would earn a total of  950.00  from holding LGI Homes or generate 9.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Nordic Semiconductor ASA  vs.  LGI Homes

 Performance 
       Timeline  
Nordic Semiconductor ASA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nordic Semiconductor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
LGI Homes 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Nordic Semiconductor and LGI Homes Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nordic Semiconductor and LGI Homes

The main advantage of trading using opposite Nordic Semiconductor and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordic Semiconductor position performs unexpectedly, LGI Homes 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 LGI Homes will offset losses from the drop in LGI Homes' long position.
The idea behind Nordic Semiconductor ASA and LGI Homes 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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