Correlation Between LGI Homes and Ares Management

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

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

Diversification Opportunities for LGI Homes and Ares Management

0.84

Correlation Coefficient

LGI Homes  Ares Management

Very poor diversification

The 3 months correlation between LGI and Ares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp and LGI Homes 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 LGI Homes are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of LGI Homes i.e., LGI Homes and Ares Management go up and down completely randomly.

Pair Corralation between LGI Homes and Ares Management

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Ares Management. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.06 times less risky than Ares Management. The stock trades about -0.17 of its potential returns per unit of risk. The Ares Management Corp is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  16,934  in Ares Management Corp on December 28, 2024 and sell it today you would lose (2,572) from holding Ares Management Corp or give up 15.19% of portfolio value over 90 days.

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

LGI Homes  vs.  Ares Management Corp

LGI Homes

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ares Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with LGI Homes and Ares Management

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

The idea behind LGI Homes and Ares Management Corp 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.