Correlation Between LGI Homes and Fortune Brands

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

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

Diversification Opportunities for LGI Homes and Fortune Brands

0.5

Correlation Coefficient

LGI Homes  Fortune Brands

Very weak diversification

The 3 months correlation between LGI and Fortune is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home 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 Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of LGI Homes i.e., LGI Homes and Fortune Brands go up and down completely randomly.

Pair Corralation between LGI Homes and Fortune Brands

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Fortune Brands. In addition to that, LGI Homes is 1.13 times more volatile than Fortune Brands Home. It trades about -0.61 of its total potential returns per unit of risk. Fortune Brands Home is currently generating about -0.41 per unit of volatility. If you would invest  7,400  in Fortune Brands Home on September 29, 2024 and sell it today you would lose (750.00) from holding Fortune Brands Home or give up 10.14% of portfolio value over 90 days.

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

LGI Homes  vs.  Fortune Brands Home

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.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with LGI Homes and Fortune Brands

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

The idea behind LGI Homes and Fortune Brands Home 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.