Correlation Between Aedas Homes and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Aedas Homes 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 Aedas Homes and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aedas Homes SA and LGI Homes, you can compare the effects of market volatilities on Aedas Homes 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 Aedas Homes with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aedas Homes and LGI Homes.
Diversification Opportunities for Aedas Homes and LGI Homes
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Aedas and LGI is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Aedas Homes SA and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Aedas Homes 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 Aedas Homes SA 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 Aedas Homes i.e., Aedas Homes and LGI Homes go up and down completely randomly.
Pair Corralation between Aedas Homes and LGI Homes
Assuming the 90 days horizon Aedas Homes SA is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Aedas Homes SA is 1.35 times less risky than LGI Homes. The stock trades about -0.13 of its potential returns per unit of risk. The LGI Homes is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 9,650 in LGI Homes on August 28, 2024 and sell it today you would earn a total of 450.00 from holding LGI Homes or generate 4.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Aedas Homes SA vs. LGI Homes
Performance |
| Timeline |
| Aedas Homes SA |
| LGI Homes |
Aedas Homes and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aedas Homes and LGI Homes
The main advantage of trading using opposite Aedas Homes and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aedas Homes 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 Aedas Homes SA 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.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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
Other Complementary Tools
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |