Correlation Between LGI Homes and CF Industries

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

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

Diversification Opportunities for LGI Homes and CF Industries

-0.17

Correlation Coefficient

LGI Homes  CF Industries

Good diversification

The 3 months correlation between LGI and CF Industries is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of LGI Homes i.e., LGI Homes and CF Industries go up and down completely randomly.

Pair Corralation between LGI Homes and CF Industries

Given the investment horizon of 90 days LGI Homes is expected to under-perform the CF Industries. In addition to that, LGI Homes is 1.47 times more volatile than CF Industries Holdings. It trades about -0.08 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.14 per unit of volatility. If you would invest  7,927  in CF Industries Holdings on September 14, 2024 and sell it today you would earn a total of  1,055  from holding CF Industries Holdings or generate 13.31% return on investment over 90 days.

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

LGI Homes  vs.  CF Industries Holdings

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.

CF Industries Holdings

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and CF Industries

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

The idea behind LGI Homes and CF Industries Holdings 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.