Correlation Between Olympic Steel and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Olympic Steel 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 Olympic Steel and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Olympic Steel and LGI Homes, you can compare the effects of market volatilities on Olympic Steel 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 Olympic Steel with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olympic Steel and LGI Homes.
Diversification Opportunities for Olympic Steel and LGI Homes
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Olympic and LGI is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Olympic Steel 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 Olympic Steel 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 Olympic Steel i.e., Olympic Steel and LGI Homes go up and down completely randomly.
Pair Corralation between Olympic Steel and LGI Homes
Given the investment horizon of 90 days Olympic Steel is expected to generate 1.12 times more return on investment than LGI Homes. However, Olympic Steel is 1.12 times more volatile than LGI Homes. It trades about 0.05 of its potential returns per unit of risk. LGI Homes is currently generating about -0.02 per unit of risk. 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 |
Olympic Steel vs. LGI Homes
Performance |
| Timeline |
| Olympic Steel |
| LGI Homes |
Olympic Steel and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Olympic Steel and LGI Homes
The main advantage of trading using opposite Olympic Steel and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Olympic Steel 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.| Olympic Steel vs. Fortitude Gold Corp | Olympic Steel vs. New Gold | Olympic Steel vs. Galiano Gold | Olympic Steel vs. GoldMining |
| 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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