Correlation Between Visa and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and LGI Homes, you can compare the effects of market volatilities on Visa 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 Visa with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and LGI Homes.
Diversification Opportunities for Visa and LGI Homes
Very good diversification
The 3 months correlation between Visa and LGI is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Visa 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 Visa Class A 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 Visa i.e., Visa and LGI Homes go up and down completely randomly.
Pair Corralation between Visa and LGI Homes
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.38 times more return on investment than LGI Homes. However, Visa Class A is 2.62 times less risky than LGI Homes. It trades about 0.08 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 per unit of risk. If you would invest 21,038 in Visa Class A on August 24, 2024 and sell it today you would earn a total of 9,954 from holding Visa Class A or generate 47.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. LGI Homes
Performance |
| Timeline |
| Visa Class A |
| LGI Homes |
Visa and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and LGI Homes
The main advantage of trading using opposite Visa and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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