Correlation Between Diamyd Medical and LGI Homes

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

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

Diversification Opportunities for Diamyd Medical and LGI Homes

-0.75

Correlation Coefficient

Diamyd Medical  LGI Homes

Pay attention - limited upside

The 3 months correlation between Diamyd and LGI is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Diamyd Medical AB and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Diamyd Medical 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 Diamyd Medical AB 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 Diamyd Medical i.e., Diamyd Medical and LGI Homes go up and down completely randomly.

Pair Corralation between Diamyd Medical and LGI Homes

Assuming the 90 days horizon Diamyd Medical AB is expected to generate 2.06 times more return on investment than LGI Homes. However, Diamyd Medical is 2.06 times more volatile than LGI Homes. It trades about 0.08 of its potential returns per unit of risk. LGI Homes is currently generating about -0.01 per unit of risk. If you would invest  70.00  in Diamyd Medical AB on October 24, 2024 and sell it today you would earn a total of  82.00  from holding Diamyd Medical AB or generate 117.14% return on investment over 90 days.

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

Diamyd Medical AB  vs.  LGI Homes

Diamyd Medical AB

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diamyd Medical AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Diamyd Medical reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Diamyd Medical and LGI Homes

The main advantage of trading using opposite Diamyd Medical and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamyd Medical 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 Diamyd Medical AB 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.