Correlation Between Ford and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and LGI Homes, you can compare the effects of market volatilities on Ford 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 Ford with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and LGI Homes.
Diversification Opportunities for Ford and LGI Homes
Good diversification
The 3 months correlation between Ford and LGI is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Ford 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 Ford Motor 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 Ford i.e., Ford and LGI Homes go up and down completely randomly.
Pair Corralation between Ford and LGI Homes
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.84 times more return on investment than LGI Homes. However, Ford Motor is 1.19 times less risky than LGI Homes. It trades about 0.02 of its potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of risk. If you would invest 1,095 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 45.00 from holding Ford Motor or generate 4.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. LGI Homes
Performance |
| Timeline |
| Ford Motor |
| LGI Homes |
Ford and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and LGI Homes
The main advantage of trading using opposite Ford and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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