Correlation Between LGI Homes and Frontdoor
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Frontdoor 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 LGI Homes and Frontdoor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Frontdoor, you can compare the effects of market volatilities on LGI Homes and Frontdoor 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 LGI Homes with a short position of Frontdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Frontdoor.
Diversification Opportunities for LGI Homes and Frontdoor
Good diversification
The 3 months correlation between LGI and Frontdoor is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor and LGI 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 LGI Homes are associated (or correlated) with Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of LGI Homes i.e., LGI Homes and Frontdoor go up and down completely randomly.
Pair Corralation between LGI Homes and Frontdoor
Assuming the 90 days trading horizon LGI Homes is expected to generate 0.79 times more return on investment than Frontdoor. However, LGI Homes is 1.26 times less risky than Frontdoor. It trades about 0.03 of its potential returns per unit of risk. Frontdoor is currently generating about 0.01 per unit of risk. If you would invest 9,850 in LGI Homes on September 13, 2024 and sell it today you would earn a total of 100.00 from holding LGI Homes or generate 1.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Frontdoor
Performance |
| Timeline |
| LGI Homes |
| Frontdoor |
LGI Homes and Frontdoor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Frontdoor
The main advantage of trading using opposite LGI Homes and Frontdoor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Frontdoor 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 Frontdoor will offset losses from the drop in Frontdoor's long position.| LGI Homes vs. NURAN WIRELESS INC | LGI Homes vs. Infrastrutture Wireless Italiane | LGI Homes vs. TITAN MACHINERY | LGI Homes vs. Corporate Office Properties |
| Frontdoor vs. Virtus Investment Partners | Frontdoor vs. Texas Roadhouse | Frontdoor vs. COPLAND ROAD CAPITAL | Frontdoor vs. Gold Road Resources |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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