Correlation Between NEW MILLENNIUM and LGI Homes

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

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

Diversification Opportunities for NEW MILLENNIUM and LGI Homes

0.09

Correlation Coefficient

NEW MILLENNIUM  LGI Homes

Significant diversification

The 3 months correlation between NEW and LGI is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding NEW MILLENNIUM IRON and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and NEW MILLENNIUM 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 NEW MILLENNIUM IRON 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 NEW MILLENNIUM i.e., NEW MILLENNIUM and LGI Homes go up and down completely randomly.

Pair Corralation between NEW MILLENNIUM and LGI Homes

Assuming the 90 days trading horizon NEW MILLENNIUM IRON is expected to generate 1.53 times more return on investment than LGI Homes. However, NEW MILLENNIUM is 1.53 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 -0.66 per unit of risk. If you would invest  810.00  in NEW MILLENNIUM IRON on October 8, 2024 and sell it today you would lose (15.00) from holding NEW MILLENNIUM IRON or give up 1.85% of portfolio value over 90 days.

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

NEW MILLENNIUM IRON  vs.  LGI Homes

NEW MILLENNIUM IRON

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NEW MILLENNIUM IRON are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NEW MILLENNIUM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NEW MILLENNIUM and LGI Homes

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

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.