Correlation Between AmTrust Financial and LGI Homes

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

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

Diversification Opportunities for AmTrust Financial and LGI Homes

-0.35

Correlation Coefficient

AmTrust Financial  LGI Homes

Very good diversification

The 3 months correlation between AmTrust and LGI is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding AmTrust Financial Services and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and AmTrust Financial 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 AmTrust Financial Services 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 AmTrust Financial i.e., AmTrust Financial and LGI Homes go up and down completely randomly.

Pair Corralation between AmTrust Financial and LGI Homes

Assuming the 90 days horizon AmTrust Financial Services is expected to generate 0.63 times more return on investment than LGI Homes. However, AmTrust Financial Services is 1.59 times less risky than LGI Homes. It trades about 0.07 of its potential returns per unit of risk. LGI Homes is currently generating about -0.05 per unit of risk. If you would invest  1,145  in AmTrust Financial Services on October 7, 2024 and sell it today you would earn a total of  305.00  from holding AmTrust Financial Services or generate 26.64% return on investment over 90 days.

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

AmTrust Financial Services  vs.  LGI Homes

AmTrust Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward indicators, AmTrust Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with AmTrust Financial and LGI Homes

The main advantage of trading using opposite AmTrust Financial and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AmTrust Financial 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 AmTrust Financial Services 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.