Correlation Between LGI Homes and Pool
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Pool 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 Pool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Pool Corporation, you can compare the effects of market volatilities on LGI Homes and Pool 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 Pool. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Pool.
Diversification Opportunities for LGI Homes and Pool
Weak diversification
The 3 months correlation between LGI and Pool is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Pool Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pool 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 Pool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pool has no effect on the direction of LGI Homes i.e., LGI Homes and Pool go up and down completely randomly.
Pair Corralation between LGI Homes and Pool
Given the investment horizon of 90 days LGI Homes is expected to under-perform the Pool. In addition to that, LGI Homes is 1.25 times more volatile than Pool Corporation. It trades about -0.02 of its total potential returns per unit of risk. Pool Corporation is currently generating about 0.14 per unit of volatility. If you would invest 35,119 in Pool Corporation on September 14, 2024 and sell it today you would earn a total of 1,835 from holding Pool Corporation or generate 5.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Pool Corp.
Performance |
| Timeline |
| LGI Homes |
| Pool |
LGI Homes and Pool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Pool
The main advantage of trading using opposite LGI Homes and Pool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Pool 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 Pool will offset losses from the drop in Pool'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 |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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