Correlation Between LSI Industries and LGL

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

By analyzing existing cross correlation between LSI Industries and LGL Group, you can compare the effects of market volatilities on LSI Industries and LGL 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 LSI Industries with a short position of LGL. Check out your portfolio center. Please also check ongoing floating volatility patterns of LSI Industries and LGL.

Diversification Opportunities for LSI Industries and LGL

0.15

Correlation Coefficient

LSI Industries  LGL

Average diversification

The 3 months correlation between LSI and LGL is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding LSI Industries and LGL Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGL Group and LSI Industries 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 LSI Industries are associated (or correlated) with LGL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGL Group has no effect on the direction of LSI Industries i.e., LSI Industries and LGL go up and down completely randomly.

Pair Corralation between LSI Industries and LGL

Given the investment horizon of 90 days LSI Industries is expected to generate 0.56 times more return on investment than LGL. However, LSI Industries is 1.78 times less risky than LGL. It trades about 0.23 of its potential returns per unit of risk. LGL Group is currently generating about 0.01 per unit of risk. If you would invest  1,566  in LSI Industries on September 2, 2024 and sell it today you would earn a total of  478.00  from holding LSI Industries or generate 30.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

LSI Industries  vs.  LGL Group

LSI Industries

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LSI Industries are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, LSI Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

LGL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, LGL is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with LSI Industries and LGL

The main advantage of trading using opposite LSI Industries and LGL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LSI Industries position performs unexpectedly, LGL 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 LGL will offset losses from the drop in LGL's long position.

The idea behind LSI Industries and LGL Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.