Correlation Between Paycom Soft and Legacy Housing

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

By analyzing existing cross correlation between Paycom Soft and Legacy Housing Corp, you can compare the effects of market volatilities on Paycom Soft and Legacy Housing 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 Paycom Soft with a short position of Legacy Housing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paycom Soft and Legacy Housing.

Diversification Opportunities for Paycom Soft and Legacy Housing

0.26

Correlation Coefficient

Paycom Soft  Legacy Housing

Modest diversification

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

Pair Corralation between Paycom Soft and Legacy Housing

Given the investment horizon of 90 days Paycom Soft is expected to generate 0.75 times more return on investment than Legacy Housing. However, Paycom Soft is 1.34 times less risky than Legacy Housing. It trades about 0.15 of its potential returns per unit of risk. Legacy Housing Corp is currently generating about 0.05 per unit of risk. If you would invest  20,140  in Paycom Soft on December 2, 2024 and sell it today you would earn a total of  1,807  from holding Paycom Soft or generate 8.97% return on investment over 90 days.

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

Paycom Soft  vs.  Legacy Housing Corp

Paycom Soft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Paycom Soft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Paycom Soft is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Legacy Housing Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legacy Housing Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Legacy Housing is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Paycom Soft and Legacy Housing

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

The idea behind Paycom Soft and Legacy Housing Corp 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.