Correlation Between LGI Homes and United Insurance

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

By analyzing existing cross correlation between LGI Homes and United Insurance Holdings, you can compare the effects of market volatilities on LGI Homes and United Insurance 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 United Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and United Insurance.

Diversification Opportunities for LGI Homes and United Insurance

-0.26

Correlation Coefficient

LGI Homes  United Insurance

Very good diversification

The 3 months correlation between LGI and United is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and United Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance Holdings 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 United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance Holdings has no effect on the direction of LGI Homes i.e., LGI Homes and United Insurance go up and down completely randomly.

Pair Corralation between LGI Homes and United Insurance

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the United Insurance. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.62 times less risky than United Insurance. The stock trades about -0.09 of its potential returns per unit of risk. The United Insurance Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  912.00  in United Insurance Holdings on October 21, 2024 and sell it today you would earn a total of  278.00  from holding United Insurance Holdings or generate 30.48% return on investment over 90 days.

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

LGI Homes  vs.  United Insurance Holdings

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

United Insurance Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Insurance Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, United Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and United Insurance

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

The idea behind LGI Homes and United Insurance Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.