Correlation Between Lendlease and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Lendlease and LGI 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 Lendlease and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lendlease Group and LGI Homes, you can compare the effects of market volatilities on Lendlease and LGI 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 Lendlease with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lendlease and LGI Homes.
Diversification Opportunities for Lendlease and LGI Homes
Poor diversification
The 3 months correlation between Lendlease and LGI is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lendlease Group and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Lendlease 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 Lendlease Group are associated (or correlated) with LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of Lendlease i.e., Lendlease and LGI Homes go up and down completely randomly.
Pair Corralation between Lendlease and LGI Homes
Assuming the 90 days trading horizon Lendlease is expected to generate 18.04 times less return on investment than LGI Homes. But when comparing it to its historical volatility, Lendlease Group is 1.4 times less risky than LGI Homes. It trades about 0.0 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 9,290 in LGI Homes on August 26, 2024 and sell it today you would earn a total of 460.00 from holding LGI Homes or generate 4.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lendlease Group vs. LGI Homes
Performance |
| Timeline |
| Lendlease Group |
| LGI Homes |
Lendlease and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lendlease and LGI Homes
The main advantage of trading using opposite Lendlease and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lendlease position performs unexpectedly, LGI 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 LGI Homes will offset losses from the drop in LGI Homes' long position.| Lendlease vs. Big 5 Sporting | Lendlease vs. Electronic Arts | Lendlease vs. Samsung Electronics Co | Lendlease vs. ALERION CLEANPOWER |
| LGI Homes vs. KB HOME | LGI Homes vs. UNITED RENTALS | LGI Homes vs. Lendlease Group | LGI Homes vs. Addus HomeCare |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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