Correlation Between LGI Homes and American Homes
Can any of the company-specific risk be diversified away by investing in both LGI Homes and American 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 LGI Homes and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and American Homes 4, you can compare the effects of market volatilities on LGI Homes and American 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 LGI Homes with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and American Homes.
Diversification Opportunities for LGI Homes and American Homes
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between LGI and American is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of LGI Homes i.e., LGI Homes and American Homes go up and down completely randomly.
Pair Corralation between LGI Homes and American Homes
Assuming the 90 days trading horizon LGI Homes is expected to under-perform the American Homes. In addition to that, LGI Homes is 1.28 times more volatile than American Homes 4. It trades about 0.0 of its total potential returns per unit of risk. American Homes 4 is currently generating about 0.04 per unit of volatility. If you would invest 3,500 in American Homes 4 on August 26, 2024 and sell it today you would earn a total of 100.00 from holding American Homes 4 or generate 2.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. American Homes 4
Performance |
| Timeline |
| LGI Homes |
| American Homes 4 |
LGI Homes and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and American Homes
The main advantage of trading using opposite LGI Homes and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, American 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 American Homes will offset losses from the drop in American Homes' long position.| LGI Homes vs. Norwegian Air Shuttle | LGI Homes vs. Cass Information Systems | LGI Homes vs. DATAGROUP SE | LGI Homes vs. ALTAIR RES INC |
| American Homes vs. INVITATION HOMES DL | American Homes vs. Superior Plus Corp | American Homes vs. NMI Holdings | American Homes vs. Origin Agritech |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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