Correlation Between Twin Vee and LGI Homes

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Can any of the company-specific risk be diversified away by investing in both Twin Vee 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 Twin Vee and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Twin Vee Powercats and LGI Homes, you can compare the effects of market volatilities on Twin Vee 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 Twin Vee with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Twin Vee and LGI Homes.

Diversification Opportunities for Twin Vee and LGI Homes

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Twin and LGI is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Twin Vee Powercats and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Twin Vee 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 Twin Vee Powercats 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 Twin Vee i.e., Twin Vee and LGI Homes go up and down completely randomly.

Pair Corralation between Twin Vee and LGI Homes

Given the investment horizon of 90 days Twin Vee Powercats is expected to under-perform the LGI Homes. In addition to that, Twin Vee is 2.7 times more volatile than LGI Homes. It trades about -0.19 of its total potential returns per unit of risk. LGI Homes is currently generating about -0.35 per unit of volatility. If you would invest  11,385  in LGI Homes on January 22, 2024 and sell it today you would lose (2,047) from holding LGI Homes or give up 17.98% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Twin Vee Powercats  vs.  LGI Homes

 Performance 
       Timeline  
Twin Vee Powercats 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days Twin Vee Powercats has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
LGI Homes 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Twin Vee and LGI Homes Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Twin Vee and LGI Homes

The main advantage of trading using opposite Twin Vee and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twin Vee 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 Twin Vee Powercats 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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