Correlation Between LGI Homes and Installed Building

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

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

Diversification Opportunities for LGI Homes and Installed Building

0.77

Correlation Coefficient

LGI Homes  Installed Building

Poor diversification

The 3 months correlation between LGI and Installed is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Installed Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Installed Building 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 Installed Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Installed Building has no effect on the direction of LGI Homes i.e., LGI Homes and Installed Building go up and down completely randomly.

Pair Corralation between LGI Homes and Installed Building

Given the investment horizon of 90 days LGI Homes is expected to generate 3.59 times less return on investment than Installed Building. In addition to that, LGI Homes is 1.02 times more volatile than Installed Building Products. It trades about 0.02 of its total potential returns per unit of risk. Installed Building Products is currently generating about 0.09 per unit of volatility. If you would invest  8,469  in Installed Building Products on August 30, 2024 and sell it today you would earn a total of  14,084  from holding Installed Building Products or generate 166.3% return on investment over 90 days.

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

LGI Homes  vs.  Installed Building Products

LGI Homes

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, LGI Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Installed Building

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Installed Building Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Installed Building is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with LGI Homes and Installed Building

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

The idea behind LGI Homes and Installed Building Products 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.