Correlation Between Allient and LGI Homes

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

Diversification Opportunities for Allient and LGI Homes

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Allient and LGI is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Allient and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Allient 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 Allient 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 Allient i.e., Allient and LGI Homes go up and down completely randomly.

Pair Corralation between Allient and LGI Homes

Given the investment horizon of 90 days Allient is expected to generate 3.0 times less return on investment than LGI Homes. In addition to that, Allient is 1.02 times more volatile than LGI Homes. It trades about 0.01 of its total potential returns per unit of risk. LGI Homes is currently generating about 0.04 per unit of volatility. If you would invest  9,800  in LGI Homes on September 1, 2024 and sell it today you would earn a total of  1,149  from holding LGI Homes or generate 11.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Allient  vs.  LGI Homes

 Performance 
       Timeline  
Allient 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Allient are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Allient unveiled solid returns over the last few months and may actually be approaching a breakup point.
LGI Homes 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Allient and LGI Homes Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Allient and LGI Homes

The main advantage of trading using opposite Allient and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allient 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 Allient 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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