Correlation Between Tyson Foods and LGI Homes

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

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

Diversification Opportunities for Tyson Foods and LGI Homes

-0.17

Correlation Coefficient

Tyson Foods  LGI Homes

Good diversification

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

Pair Corralation between Tyson Foods and LGI Homes

Considering the 90-day investment horizon Tyson Foods is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Tyson Foods is 2.63 times less risky than LGI Homes. The stock trades about -0.29 of its potential returns per unit of risk. The LGI Homes is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  10,420  in LGI Homes on September 16, 2024 and sell it today you would lose (435.00) from holding LGI Homes or give up 4.17% of portfolio value over 90 days.

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

Tyson Foods  vs.  LGI Homes

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Tyson Foods and LGI Homes

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

The idea behind Tyson Foods and LGI Homes 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.