Correlation Between Brinker International and LGI Homes

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

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

Diversification Opportunities for Brinker International and LGI Homes

-0.39

Correlation Coefficient

Brinker International  LGI Homes

Very good diversification

The 3 months correlation between Brinker and LGI is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Brinker International and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Brinker International 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 Brinker International 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 Brinker International i.e., Brinker International and LGI Homes go up and down completely randomly.

Pair Corralation between Brinker International and LGI Homes

Assuming the 90 days horizon Brinker International is expected to generate 1.41 times more return on investment than LGI Homes. However, Brinker International is 1.41 times more volatile than LGI Homes. It trades about 0.3 of its potential returns per unit of risk. LGI Homes is currently generating about -0.1 per unit of risk. If you would invest  8,550  in Brinker International on September 23, 2024 and sell it today you would earn a total of  4,150  from holding Brinker International or generate 48.54% return on investment over 90 days.

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

Brinker International  vs.  LGI Homes

Brinker International

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Brinker International reported solid returns over the last few months and may actually be approaching a breakup point.

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 Brinker International and LGI Homes

The main advantage of trading using opposite Brinker International and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brinker International 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 Brinker International 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.