Correlation Between Bausch and LGI Homes

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

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

Diversification Opportunities for Bausch and LGI Homes

-0.46

Correlation Coefficient

Bausch  LGI Homes

Very good diversification

The 3 months correlation between Bausch and LGI is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Bausch Health Companies and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Bausch 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 Bausch Health Companies 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 Bausch i.e., Bausch and LGI Homes go up and down completely randomly.

Pair Corralation between Bausch and LGI Homes

Assuming the 90 days trading horizon Bausch Health Companies is expected to under-perform the LGI Homes. In addition to that, Bausch is 2.98 times more volatile than LGI Homes. It trades about -0.15 of its total potential returns per unit of risk. LGI Homes is currently generating about -0.16 per unit of volatility. If you would invest  11,053  in LGI Homes on October 7, 2024 and sell it today you would lose (2,365) from holding LGI Homes or give up 21.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	46.03%
Values	Daily Returns

Bausch Health Companies  vs.  LGI Homes

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 weak 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.

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

Pair Trading with Bausch and LGI Homes

The main advantage of trading using opposite Bausch and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bausch 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 Bausch Health Companies 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.