Correlation Between LGI Homes and Penn National
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Penn National 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 Penn National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Penn National Gaming, you can compare the effects of market volatilities on LGI Homes and Penn National 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 Penn National. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Penn National.
Diversification Opportunities for LGI Homes and Penn National
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between LGI and Penn is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming 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 Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of LGI Homes i.e., LGI Homes and Penn National go up and down completely randomly.
Pair Corralation between LGI Homes and Penn National
Assuming the 90 days trading horizon LGI Homes is expected to generate 0.91 times more return on investment than Penn National. However, LGI Homes is 1.1 times less risky than Penn National. It trades about 0.22 of its potential returns per unit of risk. Penn National Gaming is currently generating about 0.11 per unit of risk. If you would invest 9,250 in LGI Homes on September 1, 2024 and sell it today you would earn a total of 1,150 from holding LGI Homes or generate 12.43% 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. Penn National Gaming
Performance |
| Timeline |
| LGI Homes |
| Penn National Gaming |
LGI Homes and Penn National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Penn National
The main advantage of trading using opposite LGI Homes and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Penn National 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 Penn National will offset losses from the drop in Penn National's long position.The idea behind LGI Homes and Penn National Gaming 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.| Penn National vs. WESTLAKE CHEMICAL | Penn National vs. Marie Brizard Wine | Penn National vs. NorAm Drilling AS | Penn National vs. SEKISUI CHEMICAL |
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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