Correlation Between LGI Homes and Bausch

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

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

Diversification Opportunities for LGI Homes and Bausch

-0.62

Correlation Coefficient

LGI Homes  Bausch

Excellent diversification

The 3 months correlation between LGI and Bausch is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Bausch Health Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bausch Health Companies 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 Bausch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bausch Health Companies has no effect on the direction of LGI Homes i.e., LGI Homes and Bausch go up and down completely randomly.

Pair Corralation between LGI Homes and Bausch

Given the investment horizon of 90 days LGI Homes is expected to generate 0.32 times more return on investment than Bausch. However, LGI Homes is 3.14 times less risky than Bausch. It trades about -0.08 of its potential returns per unit of risk. Bausch Health Companies is currently generating about -0.14 per unit of risk. If you would invest  10,500  in LGI Homes on October 22, 2024 and sell it today you would lose (1,253) from holding LGI Homes or give up 11.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	43.55%
Values	Daily Returns

LGI Homes  vs.  Bausch Health Companies

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 latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Bausch Health Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bausch Health Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for Bausch Health Companies investors.

Pair Trading with LGI Homes and Bausch

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

The idea behind LGI Homes and Bausch Health Companies 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.