Correlation Between American Homes and LGI Homes
Can any of the company-specific risk be diversified away by investing in both American 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 American 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 American Homes 4 and LGI Homes, you can compare the effects of market volatilities on American 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 American Homes with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and LGI Homes.
Diversification Opportunities for American Homes and LGI Homes
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between American and LGI is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and American 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 American Homes 4 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 American Homes i.e., American Homes and LGI Homes go up and down completely randomly.
Pair Corralation between American Homes and LGI Homes
Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.78 times more return on investment than LGI Homes. However, American Homes 4 is 1.28 times less risky than LGI Homes. It trades about 0.04 of its potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of risk. If you would invest 3,500 in American Homes 4 on August 26, 2024 and sell it today you would earn a total of 100.00 from holding American Homes 4 or generate 2.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. LGI Homes
Performance |
| Timeline |
| American Homes 4 |
| LGI Homes |
American Homes and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and LGI Homes
The main advantage of trading using opposite American Homes and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American 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.| American Homes vs. INVITATION HOMES DL | American Homes vs. Superior Plus Corp | American Homes vs. NMI Holdings | American Homes vs. Origin Agritech |
| LGI Homes vs. Norwegian Air Shuttle | LGI Homes vs. Cass Information Systems | LGI Homes vs. DATAGROUP SE | LGI Homes vs. ALTAIR RES INC |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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