Correlation Between Kontoor Brands and LGI Homes

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

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

Diversification Opportunities for Kontoor Brands and LGI Homes

-0.24

Correlation Coefficient

Kontoor Brands  LGI Homes

Very good diversification

The 3 months correlation between Kontoor and LGI is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Kontoor Brands and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Kontoor Brands 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 Kontoor Brands 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 Kontoor Brands i.e., Kontoor Brands and LGI Homes go up and down completely randomly.

Pair Corralation between Kontoor Brands and LGI Homes

Considering the 90-day investment horizon Kontoor Brands is expected to generate 0.73 times more return on investment than LGI Homes. However, Kontoor Brands is 1.37 times less risky than LGI Homes. It trades about 0.11 of its potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of risk. If you would invest  4,704  in Kontoor Brands on September 12, 2024 and sell it today you would earn a total of  4,303  from holding Kontoor Brands or generate 91.48% return on investment over 90 days.

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

Kontoor Brands  vs.  LGI Homes

Kontoor Brands

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kontoor Brands are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Kontoor Brands sustained 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. 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 Kontoor Brands and LGI Homes

The main advantage of trading using opposite Kontoor Brands and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kontoor Brands 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 Kontoor Brands 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.