Correlation Between Sirius XM and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Sirius XM 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 Sirius XM and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sirius XM Holding and LGI Homes, you can compare the effects of market volatilities on Sirius XM 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 Sirius XM with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sirius XM and LGI Homes.
Diversification Opportunities for Sirius XM and LGI Homes
Very poor diversification
The 3 months correlation between Sirius and LGI is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sirius XM Holding and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Sirius XM 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 Sirius XM Holding 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 Sirius XM i.e., Sirius XM and LGI Homes go up and down completely randomly.
Pair Corralation between Sirius XM and LGI Homes
Given the investment horizon of 90 days Sirius XM Holding is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Sirius XM Holding is 1.73 times less risky than LGI Homes. The stock trades about -0.68 of its potential returns per unit of risk. The LGI Homes is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest 10,669 in LGI Homes on January 18, 2024 and sell it today you would lose (1,156) from holding LGI Homes or give up 10.84% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Sirius XM Holding vs. LGI Homes
Performance |
Timeline |
Sirius XM Holding |
LGI Homes |
Sirius XM and LGI Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sirius XM and LGI Homes
The main advantage of trading using opposite Sirius XM and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sirius XM 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.Sirius XM vs. Liberty Global PLC | Sirius XM vs. Shenandoah Telecommunications Co | Sirius XM vs. Liberty Global PLC | Sirius XM vs. Liberty Latin America |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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