Correlation Between LGI Homes and CARPENTER

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

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

Diversification Opportunities for LGI Homes and CARPENTER

0.29

Correlation Coefficient

LGI Homes  CARPENTER

Modest diversification

The 3 months correlation between LGI and CARPENTER is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and CARPENTER TECHNOLOGY P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARPENTER TECHNOLOGY 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 CARPENTER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARPENTER TECHNOLOGY has no effect on the direction of LGI Homes i.e., LGI Homes and CARPENTER go up and down completely randomly.

Pair Corralation between LGI Homes and CARPENTER

Given the investment horizon of 90 days LGI Homes is expected to under-perform the CARPENTER. In addition to that, LGI Homes is 9.35 times more volatile than CARPENTER TECHNOLOGY P. It trades about -0.16 of its total potential returns per unit of risk. CARPENTER TECHNOLOGY P is currently generating about 0.03 per unit of volatility. If you would invest  9,947  in CARPENTER TECHNOLOGY P on December 29, 2024 and sell it today you would earn a total of  52.00  from holding CARPENTER TECHNOLOGY P or generate 0.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

LGI Homes  vs.  CARPENTER TECHNOLOGY P

LGI Homes

Risk-Adjusted Performance

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 April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

CARPENTER TECHNOLOGY

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARPENTER TECHNOLOGY P are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CARPENTER is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LGI Homes and CARPENTER

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

The idea behind LGI Homes and CARPENTER TECHNOLOGY P 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.