Correlation Between LGI Homes and Abacus Life

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

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

Diversification Opportunities for LGI Homes and Abacus Life

0.62

Correlation Coefficient

LGI Homes  Abacus Life

Poor diversification

The 3 months correlation between LGI and Abacus is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Abacus Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abacus Life 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 Abacus Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abacus Life has no effect on the direction of LGI Homes i.e., LGI Homes and Abacus Life go up and down completely randomly.

Pair Corralation between LGI Homes and Abacus Life

Given the investment horizon of 90 days LGI Homes is expected to generate 0.45 times more return on investment than Abacus Life. However, LGI Homes is 2.23 times less risky than Abacus Life. It trades about -0.14 of its potential returns per unit of risk. Abacus Life is currently generating about -0.13 per unit of risk. If you would invest  11,322  in LGI Homes on September 25, 2024 and sell it today you would lose (2,202) from holding LGI Homes or give up 19.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

LGI Homes  vs.  Abacus Life

LGI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Abacus Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abacus Life has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's essential indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with LGI Homes and Abacus Life

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

The idea behind LGI Homes and Abacus Life 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.