Correlation Between LGI Homes and Air Products

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

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

Diversification Opportunities for LGI Homes and Air Products

-0.48

Correlation Coefficient

LGI Homes  Air Products

Very good diversification

The 3 months correlation between LGI and Air is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of LGI Homes i.e., LGI Homes and Air Products go up and down completely randomly.

Pair Corralation between LGI Homes and Air Products

Given the investment horizon of 90 days LGI Homes is expected to under-perform the Air Products. In addition to that, LGI Homes is 1.47 times more volatile than Air Products and. It trades about -0.08 of its total potential returns per unit of risk. Air Products and is currently generating about 0.09 per unit of volatility. If you would invest  28,715  in Air Products and on September 14, 2024 and sell it today you would earn a total of  2,374  from holding Air Products and or generate 8.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

LGI Homes  vs.  Air Products and

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 latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Air Products

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with LGI Homes and Air Products

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

The idea behind LGI Homes and Air Products and 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.