Correlation Between Lamar Advertising and Tri Pointe

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

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

Diversification Opportunities for Lamar Advertising and Tri Pointe

0.45

Correlation Coefficient

Lamar Advertising  Tri Pointe

Very weak diversification

The 3 months correlation between Lamar and Tri is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lamar Advertising and Tri Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Pointe Homes and Lamar Advertising 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 Lamar Advertising are associated (or correlated) with Tri Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Pointe Homes has no effect on the direction of Lamar Advertising i.e., Lamar Advertising and Tri Pointe go up and down completely randomly.

Pair Corralation between Lamar Advertising and Tri Pointe

Assuming the 90 days trading horizon Lamar Advertising is expected to generate 1.7 times less return on investment than Tri Pointe. But when comparing it to its historical volatility, Lamar Advertising is 1.34 times less risky than Tri Pointe. It trades about 0.05 of its potential returns per unit of risk. Tri Pointe Homes is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,870  in Tri Pointe Homes on September 29, 2024 and sell it today you would earn a total of  1,650  from holding Tri Pointe Homes or generate 88.24% return on investment over 90 days.

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

Lamar Advertising  vs.  Tri Pointe Homes

Lamar Advertising

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lamar Advertising is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lamar Advertising and Tri Pointe

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

The idea behind Lamar Advertising and Tri Pointe 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.