Correlation Between LGI Homes and Benchmark Electronics

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

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

Diversification Opportunities for LGI Homes and Benchmark Electronics

-0.18

Correlation Coefficient

LGI Homes  Benchmark Electronics

Good diversification

The 3 months correlation between LGI and Benchmark is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics and LGI Homes 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 LGI Homes are associated (or correlated) with Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of LGI Homes i.e., LGI Homes and Benchmark Electronics go up and down completely randomly.

Pair Corralation between LGI Homes and Benchmark Electronics

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Benchmark Electronics. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.15 times less risky than Benchmark Electronics. The stock trades about -0.63 of its potential returns per unit of risk. The Benchmark Electronics is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  4,562  in Benchmark Electronics on October 6, 2024 and sell it today you would lose (202.00) from holding Benchmark Electronics or give up 4.43% of portfolio value over 90 days.

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

LGI Homes  vs.  Benchmark Electronics

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 fragile 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.

Benchmark Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benchmark Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LGI Homes and Benchmark Electronics

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

The idea behind LGI Homes and Benchmark Electronics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.