Correlation Between Corporate Office and LGI Homes

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

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

Diversification Opportunities for Corporate Office and LGI Homes

0.05

Correlation Coefficient

Corporate Office  LGI Homes

Significant diversification

The 3 months correlation between Corporate and LGI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Corporate Office Properties and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Corporate Office 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 Corporate Office Properties 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 Corporate Office i.e., Corporate Office and LGI Homes go up and down completely randomly.

Pair Corralation between Corporate Office and LGI Homes

Assuming the 90 days horizon Corporate Office Properties is expected to generate 0.45 times more return on investment than LGI Homes. However, Corporate Office Properties is 2.23 times less risky than LGI Homes. It trades about 0.22 of its potential returns per unit of risk. LGI Homes is currently generating about 0.07 per unit of risk. If you would invest  2,631  in Corporate Office Properties on September 4, 2024 and sell it today you would earn a total of  449.00  from holding Corporate Office Properties or generate 17.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Corporate Office Properties  vs.  LGI Homes

Corporate Office Pro

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Corporate Office Properties are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Corporate Office reported solid returns over the last few months and may actually be approaching a breakup point.

LGI Homes

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Corporate Office and LGI Homes

The main advantage of trading using opposite Corporate Office and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Corporate Office 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 Corporate Office Properties 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.