Correlation Between Penta Ocean and LGI Homes

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

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

Diversification Opportunities for Penta Ocean and LGI Homes

-0.62

Correlation Coefficient

Penta Ocean  LGI Homes

Excellent diversification

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

Pair Corralation between Penta Ocean and LGI Homes

Assuming the 90 days horizon Penta Ocean is expected to generate 1.0 times less return on investment than LGI Homes. But when comparing it to its historical volatility, Penta Ocean Construction Co is 1.67 times less risky than LGI Homes. It trades about 0.18 of its potential returns per unit of risk. LGI Homes is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,600  in LGI Homes on October 24, 2024 and sell it today you would earn a total of  300.00  from holding LGI Homes or generate 3.49% return on investment over 90 days.

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

Penta Ocean Construction Co  vs.  LGI Homes

Penta Ocean Construc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penta Ocean is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Penta Ocean and LGI Homes

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

The idea behind Penta Ocean Construction Co and LGI Homes 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.