Correlation Between Lifeway Foods and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Lifeway Foods 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 Lifeway Foods and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lifeway Foods and LGI Homes, you can compare the effects of market volatilities on Lifeway Foods 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 Lifeway Foods with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifeway Foods and LGI Homes.
Diversification Opportunities for Lifeway Foods and LGI Homes
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Lifeway and LGI is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods i.e., Lifeway Foods and LGI Homes go up and down completely randomly.
Pair Corralation between Lifeway Foods and LGI Homes
Assuming the 90 days horizon Lifeway Foods is expected to under-perform the LGI Homes. In addition to that, Lifeway Foods is 2.1 times more volatile than LGI Homes. It trades about -0.01 of its total potential returns per unit of risk. LGI Homes is currently generating about 0.22 per unit of volatility. 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 |
Lifeway Foods vs. LGI Homes
Performance |
| Timeline |
| Lifeway Foods |
| LGI Homes |
Lifeway Foods and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lifeway Foods and LGI Homes
The main advantage of trading using opposite Lifeway Foods and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifeway Foods 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.| Lifeway Foods vs. ScanSource | Lifeway Foods vs. Waste Management | Lifeway Foods vs. Brockhaus Capital Management | Lifeway Foods vs. Consolidated Communications Holdings |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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