Correlation Between Ribbon Communications and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Ribbon Communications 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 Ribbon Communications and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ribbon Communications and LGI Homes, you can compare the effects of market volatilities on Ribbon Communications 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 Ribbon Communications with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ribbon Communications and LGI Homes.
Diversification Opportunities for Ribbon Communications and LGI Homes
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ribbon and LGI is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Ribbon Communications 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 Ribbon Communications 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 Ribbon Communications i.e., Ribbon Communications and LGI Homes go up and down completely randomly.
Pair Corralation between Ribbon Communications and LGI Homes
Assuming the 90 days trading horizon Ribbon Communications is expected to generate 1.31 times more return on investment than LGI Homes. However, Ribbon Communications is 1.31 times more volatile than LGI Homes. It trades about 0.04 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 per unit of risk. If you would invest 248.00 in Ribbon Communications on September 3, 2024 and sell it today you would earn a total of 120.00 from holding Ribbon Communications or generate 48.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ribbon Communications vs. LGI Homes
Performance |
| Timeline |
| Ribbon Communications |
| LGI Homes |
Ribbon Communications and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ribbon Communications and LGI Homes
The main advantage of trading using opposite Ribbon Communications and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ribbon Communications 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.| Ribbon Communications vs. Lamar Advertising | Ribbon Communications vs. Datang International Power | Ribbon Communications vs. Automatic Data Processing | Ribbon Communications vs. MICRONIC MYDATA |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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