Correlation Between LGI Homes and Addus HomeCare

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

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

Diversification Opportunities for LGI Homes and Addus HomeCare

0.66

Correlation Coefficient

LGI Homes  Addus HomeCare

Poor diversification

The 3 months correlation between LGI and Addus is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare 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 Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of LGI Homes i.e., LGI Homes and Addus HomeCare go up and down completely randomly.

Pair Corralation between LGI Homes and Addus HomeCare

Given the investment horizon of 90 days LGI Homes is expected to under-perform the Addus HomeCare. In addition to that, LGI Homes is 1.36 times more volatile than Addus HomeCare. It trades about -0.09 of its total potential returns per unit of risk. Addus HomeCare is currently generating about -0.04 per unit of volatility. If you would invest  13,200  in Addus HomeCare on September 16, 2024 and sell it today you would lose (700.00) from holding Addus HomeCare or give up 5.3% 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.  Addus HomeCare

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 uncertain 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.

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LGI Homes and Addus HomeCare

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

The idea behind LGI Homes and Addus HomeCare 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.