Correlation Between LGI Homes and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Diageo PLC 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 Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Diageo PLC ADR, you can compare the effects of market volatilities on LGI Homes and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Diageo PLC.
Diversification Opportunities for LGI Homes and Diageo PLC
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGI and Diageo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of LGI Homes i.e., LGI Homes and Diageo PLC go up and down completely randomly.
Pair Corralation between LGI Homes and Diageo PLC
Given the investment horizon of 90 days LGI Homes is expected to generate 2.02 times more return on investment than Diageo PLC. However, LGI Homes is 2.02 times more volatile than Diageo PLC ADR. It trades about 0.02 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.05 per unit of risk. If you would invest 9,485 in LGI Homes on August 27, 2024 and sell it today you would earn a total of 1,097 from holding LGI Homes or generate 11.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Diageo PLC ADR
Performance |
| Timeline |
| LGI Homes |
| Diageo PLC ADR |
LGI Homes and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Diageo PLC
The main advantage of trading using opposite LGI Homes and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| LGI Homes vs. Arhaus Inc | LGI Homes vs. Floor Decor Holdings | LGI Homes vs. Kingfisher plc | LGI Homes vs. Haverty Furniture Companies |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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