Correlation Between INVITATION HOMES and LGI Homes

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

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

Diversification Opportunities for INVITATION HOMES and LGI Homes

0.32

Correlation Coefficient

INVITATION HOMES  LGI Homes

Weak diversification

The 3 months correlation between INVITATION and LGI is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding INVITATION HOMES DL and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and INVITATION 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 INVITATION HOMES DL 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 INVITATION HOMES i.e., INVITATION HOMES and LGI Homes go up and down completely randomly.

Pair Corralation between INVITATION HOMES and LGI Homes

Assuming the 90 days horizon INVITATION HOMES DL is expected to generate 0.5 times more return on investment than LGI Homes. However, INVITATION HOMES DL is 2.01 times less risky than LGI Homes. It trades about 0.03 of its potential returns per unit of risk. LGI Homes is currently generating about 0.01 per unit of risk. If you would invest  2,575  in INVITATION HOMES DL on September 29, 2024 and sell it today you would earn a total of  505.00  from holding INVITATION HOMES DL or generate 19.61% return on investment over 90 days.

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

INVITATION HOMES DL  vs.  LGI Homes

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with INVITATION HOMES and LGI Homes

The main advantage of trading using opposite INVITATION HOMES and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INVITATION HOMES 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 INVITATION HOMES DL 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 Global Correlations module to find global opportunities by holding instruments from different markets.