Correlation Between Here Media and LGI Homes

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

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

Diversification Opportunities for Here Media and LGI Homes

0.0

Correlation Coefficient

Here Media  LGI Homes

Pay attention - limited upside

The 3 months correlation between Here and LGI is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Here Media and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Here Media 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 Here Media 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 Here Media i.e., Here Media and LGI Homes go up and down completely randomly.

Pair Corralation between Here Media and LGI Homes

Assuming the 90 days horizon Here Media is expected to generate 1.96 times more return on investment than LGI Homes. However, Here Media is 1.96 times more volatile than LGI Homes. It trades about 0.06 of its potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of risk. If you would invest  0.01  in Here Media on September 12, 2024 and sell it today you would earn a total of  0.01  from holding Here Media or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Here Media  vs.  LGI Homes

Here Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Here Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Here Media is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 fairly strong forward indicators, LGI Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Here Media and LGI Homes

The main advantage of trading using opposite Here Media and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Here Media 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 Here Media 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.