Correlation Between LGI Homes and Topbuild Corp
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Topbuild Corp 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 Topbuild Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Topbuild Corp, you can compare the effects of market volatilities on LGI Homes and Topbuild Corp 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 Topbuild Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Topbuild Corp.
Diversification Opportunities for LGI Homes and Topbuild Corp
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGI and Topbuild is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Topbuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topbuild Corp 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 Topbuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topbuild Corp has no effect on the direction of LGI Homes i.e., LGI Homes and Topbuild Corp go up and down completely randomly.
Pair Corralation between LGI Homes and Topbuild Corp
Given the investment horizon of 90 days LGI Homes is expected to under-perform the Topbuild Corp. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.16 times less risky than Topbuild Corp. The stock trades about -0.06 of its potential returns per unit of risk. The Topbuild Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 40,681 in Topbuild Corp on August 30, 2024 and sell it today you would lose (1,886) from holding Topbuild Corp or give up 4.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.73% |
| Values | Daily Returns |
LGI Homes vs. Topbuild Corp
Performance |
| Timeline |
| LGI Homes |
| Topbuild Corp |
LGI Homes and Topbuild Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Topbuild Corp
The main advantage of trading using opposite LGI Homes and Topbuild Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Topbuild Corp 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 Topbuild Corp will offset losses from the drop in Topbuild Corp's long position.| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
| Topbuild Corp vs. Meritage | Topbuild Corp vs. LGI Homes | Topbuild Corp vs. Hovnanian Enterprises | Topbuild Corp vs. Lennar |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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