Correlation Between Western Copper and LGI Homes

Can any of the company-specific risk be diversified away by investing in both Western Copper 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 Western Copper and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Copper and and LGI Homes, you can compare the effects of market volatilities on Western Copper 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 Western Copper with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Copper and LGI Homes.

Diversification Opportunities for Western Copper and LGI Homes

0.33

Correlation Coefficient

Western Copper  LGI Homes

Weak diversification

The 3 months correlation between Western and LGI is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Western Copper and and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Western Copper 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 Western Copper and 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 Western Copper i.e., Western Copper and LGI Homes go up and down completely randomly.

Pair Corralation between Western Copper and LGI Homes

Assuming the 90 days trading horizon Western Copper and is expected to under-perform the LGI Homes. In addition to that, Western Copper is 1.07 times more volatile than LGI Homes. It trades about -0.02 of its total potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of volatility. If you would invest  10,350  in LGI Homes on October 23, 2024 and sell it today you would lose (1,350) from holding LGI Homes or give up 13.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Western Copper and  vs.  LGI Homes

Western Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Copper and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LGI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LGI Homes is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Western Copper and LGI Homes

The main advantage of trading using opposite Western Copper and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Copper 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 Western Copper and 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.