Correlation Between Reservoir Media and LGI Homes

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

Diversification Opportunities for Reservoir Media and LGI Homes

-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between Reservoir and LGI is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Reservoir Media and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Reservoir Media 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 Reservoir Media 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 Reservoir Media i.e., Reservoir Media and LGI Homes go up and down completely randomly.

Pair Corralation between Reservoir Media and LGI Homes

Given the investment horizon of 90 days Reservoir Media is expected to generate 0.81 times more return on investment than LGI Homes. However, Reservoir Media is 1.23 times less risky than LGI Homes. It trades about 0.05 of its potential returns per unit of risk. LGI Homes is currently generating about 0.01 per unit of risk. If you would invest  615.00  in Reservoir Media on September 23, 2024 and sell it today you would earn a total of  311.00  from holding Reservoir Media or generate 50.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Reservoir Media  vs.  LGI Homes

 Performance 
       Timeline  
Reservoir Media 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Reservoir Media are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Reservoir Media reported solid returns over the last few months and may actually be approaching a breakup point.
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 inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Reservoir Media and LGI Homes Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Reservoir Media and LGI Homes

The main advantage of trading using opposite Reservoir Media and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reservoir Media 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 Reservoir Media 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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