Correlation Between LGI Homes and Aedas Homes

Can any of the company-specific risk be diversified away by investing in both LGI Homes and Aedas 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 LGI Homes and Aedas Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LGI Homes and Aedas Homes SA, you can compare the effects of market volatilities on LGI Homes and Aedas 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 LGI Homes with a short position of Aedas Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Aedas Homes.

Diversification Opportunities for LGI Homes and Aedas Homes

-0.06

Correlation Coefficient

LGI Homes  Aedas Homes

Good diversification

The 3 months correlation between LGI and Aedas is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Aedas Homes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aedas Homes SA 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 Aedas Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aedas Homes SA has no effect on the direction of LGI Homes i.e., LGI Homes and Aedas Homes go up and down completely randomly.

Pair Corralation between LGI Homes and Aedas Homes

Assuming the 90 days trading horizon LGI Homes is expected to generate 3.43 times less return on investment than Aedas Homes. In addition to that, LGI Homes is 1.58 times more volatile than Aedas Homes SA. It trades about 0.02 of its total potential returns per unit of risk. Aedas Homes SA is currently generating about 0.12 per unit of volatility. If you would invest  930.00  in Aedas Homes SA on September 4, 2024 and sell it today you would earn a total of  1,520  from holding Aedas Homes SA or generate 163.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

LGI Homes  vs.  Aedas Homes SA

LGI Homes

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aedas Homes SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aedas Homes SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aedas Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LGI Homes and Aedas Homes

The main advantage of trading using opposite LGI Homes and Aedas Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Aedas 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 Aedas Homes will offset losses from the drop in Aedas Homes' long position.

The idea behind LGI Homes and Aedas Homes SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.