Correlation Between Wendys and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Wendys 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 Wendys and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and LGI Homes, you can compare the effects of market volatilities on Wendys 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 Wendys with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and LGI Homes.
Diversification Opportunities for Wendys and LGI Homes
Good diversification
The 3 months correlation between Wendys and LGI is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and LGI Homes go up and down completely randomly.
Pair Corralation between Wendys and LGI Homes
Considering the 90-day investment horizon The Wendys Co is expected to under-perform the LGI Homes. In addition to that, Wendys is 1.07 times more volatile than LGI Homes. It trades about -0.1 of its total potential returns per unit of risk. LGI Homes is currently generating about -0.02 per unit of volatility. If you would invest 10,417 in LGI Homes on August 24, 2024 and sell it today you would lose (144.00) from holding LGI Homes or give up 1.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Wendys Co vs. LGI Homes
Performance |
| Timeline |
| The Wendys |
| LGI Homes |
Wendys and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendys and LGI Homes
The main advantage of trading using opposite Wendys and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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.| Wendys vs. Yum Brands | Wendys vs. Dominos Pizza | Wendys vs. Darden Restaurants | Wendys vs. Papa Johns International |
| 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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