Correlation Between DFS Furniture and LGI Homes
Can any of the company-specific risk be diversified away by investing in both DFS Furniture 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 DFS Furniture and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFS Furniture PLC and LGI Homes, you can compare the effects of market volatilities on DFS Furniture 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 DFS Furniture with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFS Furniture and LGI Homes.
Diversification Opportunities for DFS Furniture and LGI Homes
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between DFS and LGI is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and DFS Furniture 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 DFS Furniture PLC 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 DFS Furniture i.e., DFS Furniture and LGI Homes go up and down completely randomly.
Pair Corralation between DFS Furniture and LGI Homes
Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.96 times less return on investment than LGI Homes. But when comparing it to its historical volatility, DFS Furniture PLC is 1.07 times less risky than LGI Homes. It trades about 0.01 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 9,290 in LGI Homes on August 24, 2024 and sell it today you would earn a total of 460.00 from holding LGI Homes or generate 4.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
DFS Furniture PLC vs. LGI Homes
Performance |
| Timeline |
| DFS Furniture PLC |
| LGI Homes |
DFS Furniture and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DFS Furniture and LGI Homes
The main advantage of trading using opposite DFS Furniture and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFS Furniture 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.| DFS Furniture vs. SOUTHWEST AIRLINES | DFS Furniture vs. JAPAN AIRLINES | DFS Furniture vs. Playtech plc | DFS Furniture vs. Digilife Technologies Limited |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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