Correlation Between LGI Homes and GFL ENVIRONM

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

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

Diversification Opportunities for LGI Homes and GFL ENVIRONM

-0.21

Correlation Coefficient

LGI Homes  GFL ENVIRONM

Very good diversification

The 3 months correlation between LGI and GFL is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and GFL ENVIRONM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GFL ENVIRONM 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 GFL ENVIRONM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GFL ENVIRONM has no effect on the direction of LGI Homes i.e., LGI Homes and GFL ENVIRONM go up and down completely randomly.

Pair Corralation between LGI Homes and GFL ENVIRONM

Assuming the 90 days trading horizon LGI Homes is expected to generate 1.53 times more return on investment than GFL ENVIRONM. However, LGI Homes is 1.53 times more volatile than GFL ENVIRONM. It trades about 0.03 of its potential returns per unit of risk. GFL ENVIRONM is currently generating about -0.18 per unit of risk. If you would invest  9,000  in LGI Homes on October 20, 2024 and sell it today you would earn a total of  50.00  from holding LGI Homes or generate 0.56% 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.  GFL ENVIRONM

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.

GFL ENVIRONM

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GFL ENVIRONM are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GFL ENVIRONM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LGI Homes and GFL ENVIRONM

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

The idea behind LGI Homes and GFL ENVIRONM 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.