Correlation Between LGI Homes and Southern

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

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

Diversification Opportunities for LGI Homes and Southern

0.71

Correlation Coefficient

LGI Homes  Southern

Poor diversification

The 3 months correlation between LGI and Southern is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Southern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of LGI Homes i.e., LGI Homes and Southern go up and down completely randomly.

Pair Corralation between LGI Homes and Southern

Given the investment horizon of 90 days LGI Homes is expected to under-perform the Southern. In addition to that, LGI Homes is 3.48 times more volatile than Southern Co. It trades about -0.14 of its total potential returns per unit of risk. Southern Co is currently generating about -0.22 per unit of volatility. If you would invest  2,457  in Southern Co on September 20, 2024 and sell it today you would lose (213.00) from holding Southern Co or give up 8.67% 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.  Southern Co

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.

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with LGI Homes and Southern

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

The idea behind LGI Homes and Southern Co 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.