Correlation Between Deluxe and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Deluxe 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 Deluxe and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deluxe and LGI Homes, you can compare the effects of market volatilities on Deluxe 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 Deluxe with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deluxe and LGI Homes.
Diversification Opportunities for Deluxe and LGI Homes
Very good diversification
The 3 months correlation between Deluxe and LGI is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Deluxe 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 Deluxe 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 Deluxe i.e., Deluxe and LGI Homes go up and down completely randomly.
Pair Corralation between Deluxe and LGI Homes
Considering the 90-day investment horizon Deluxe is expected to generate 1.27 times more return on investment than LGI Homes. However, Deluxe is 1.27 times more volatile than LGI Homes. It trades about 0.33 of its potential returns per unit of risk. LGI Homes is currently generating about 0.13 per unit of risk. If you would invest 1,892 in Deluxe on August 28, 2024 and sell it today you would earn a total of 451.00 from holding Deluxe or generate 23.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deluxe vs. LGI Homes
Performance |
| Timeline |
| Deluxe |
| LGI Homes |
Deluxe and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deluxe and LGI Homes
The main advantage of trading using opposite Deluxe and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deluxe 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.| Deluxe vs. Criteo Sa | Deluxe vs. Emerald Expositions Events | Deluxe vs. Marchex | Deluxe vs. Integral Ad Science |
| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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