Correlation Between Weibo Corp and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Weibo Corp 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 Weibo Corp and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Weibo Corp and LGI Homes, you can compare the effects of market volatilities on Weibo Corp 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 Weibo Corp with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weibo Corp and LGI Homes.
Diversification Opportunities for Weibo Corp and LGI Homes
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Weibo and LGI is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Weibo Corp and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Weibo Corp 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 Weibo Corp 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 Weibo Corp i.e., Weibo Corp and LGI Homes go up and down completely randomly.
Pair Corralation between Weibo Corp and LGI Homes
Allowing for the 90-day total investment horizon Weibo Corp is expected to generate 1.27 times more return on investment than LGI Homes. However, Weibo Corp is 1.27 times more volatile than LGI Homes. It trades about -0.07 of its potential returns per unit of risk. LGI Homes is currently generating about -0.33 per unit of risk. If you would invest 857.00 in Weibo Corp on January 20, 2024 and sell it today you would lose (51.00) from holding Weibo Corp or give up 5.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Weibo Corp vs. LGI Homes
Performance |
| Timeline |
| Weibo Corp |
| LGI Homes |
Weibo Corp and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Weibo Corp and LGI Homes
The main advantage of trading using opposite Weibo Corp and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weibo Corp 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 Weibo Corp 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.| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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