Correlation Between LGI Homes and BW Offshore

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

By analyzing existing cross correlation between LGI Homes and BW Offshore Limited, you can compare the effects of market volatilities on LGI Homes and BW Offshore 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 BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and BW Offshore.

Diversification Opportunities for LGI Homes and BW Offshore

-0.37

Correlation Coefficient

LGI Homes  BW Offshore

Very good diversification

The 3 months correlation between LGI and BWOFY is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and BW Offshore Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore Limited 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 BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore Limited has no effect on the direction of LGI Homes i.e., LGI Homes and BW Offshore go up and down completely randomly.

Pair Corralation between LGI Homes and BW Offshore

Given the investment horizon of 90 days LGI Homes is expected to under-perform the BW Offshore. In addition to that, LGI Homes is 4.5 times more volatile than BW Offshore Limited. It trades about -0.09 of its total potential returns per unit of risk. BW Offshore Limited is currently generating about 0.29 per unit of volatility. If you would invest  538.00  in BW Offshore Limited on September 20, 2024 and sell it today you would earn a total of  17.00  from holding BW Offshore Limited or generate 3.16% return on investment over 90 days.

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

LGI Homes  vs.  BW Offshore Limited

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. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

BW Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, BW Offshore is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LGI Homes and BW Offshore

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

The idea behind LGI Homes and BW Offshore Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.