Correlation Between LCI Industries and Malibu Boats

Can any of the company-specific risk be diversified away by investing in both LCI Industries and Malibu Boats 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 LCI Industries and Malibu Boats into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for LCI Industries and Malibu Boats

0.26

Correlation Coefficient

LCI Industries  Malibu Boats

Modest diversification

The 3 months correlation between LCI and Malibu is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding LCI Industries and Malibu Boats in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malibu Boats and LCI Industries 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 LCI Industries are associated (or correlated) with Malibu Boats. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malibu Boats has no effect on the direction of LCI Industries i.e., LCI Industries and Malibu Boats go up and down completely randomly.

Pair Corralation between LCI Industries and Malibu Boats

Given the investment horizon of 90 days LCI Industries is expected to generate 3.81 times less return on investment than Malibu Boats. But when comparing it to its historical volatility, LCI Industries is 1.18 times less risky than Malibu Boats. It trades about 0.04 of its potential returns per unit of risk. Malibu Boats is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,637  in Malibu Boats on August 30, 2024 and sell it today you would earn a total of  727.00  from holding Malibu Boats or generate 19.99% return on investment over 90 days.

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

LCI Industries  vs.  Malibu Boats

LCI Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LCI Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, LCI Industries is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Malibu Boats

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Malibu Boats are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Malibu Boats unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LCI Industries and Malibu Boats

The main advantage of trading using opposite LCI Industries and Malibu Boats positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LCI Industries position performs unexpectedly, Malibu Boats 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 Malibu Boats will offset losses from the drop in Malibu Boats' long position.

The idea behind LCI Industries and Malibu Boats 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.