Correlation Between Wendys and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Wendys 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 Wendys and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and LGI Homes, you can compare the effects of market volatilities on Wendys 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 Wendys with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and LGI Homes.
Diversification Opportunities for Wendys and LGI Homes
Very good diversification
The 3 months correlation between Wendys and LGI is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Wendys 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 The Wendys 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 Wendys i.e., Wendys and LGI Homes go up and down completely randomly.
Pair Corralation between Wendys and LGI Homes
Considering the 90-day investment horizon The Wendys Co is expected to generate 0.41 times more return on investment than LGI Homes. However, The Wendys Co is 2.43 times less risky than LGI Homes. It trades about 0.34 of its potential returns per unit of risk. LGI Homes is currently generating about -0.06 per unit of risk. If you would invest 1,857 in The Wendys Co on February 6, 2024 and sell it today you would earn a total of 137.00 from holding The Wendys Co or generate 7.38% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
The Wendys Co vs. LGI Homes
Performance |
Timeline |
The Wendys |
LGI Homes |
Wendys and LGI Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Wendys and LGI Homes
The main advantage of trading using opposite Wendys and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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.Wendys vs. Lottery Common Stock | Wendys vs. Microvast Holdings | Wendys vs. AEye Inc | Wendys vs. Bakkt Holdings Warrant |
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Check out your portfolio center.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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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