Correlation Between LGI Homes and National Storage

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

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

Diversification Opportunities for LGI Homes and National Storage

0.68

Correlation Coefficient

LGI Homes  National Storage

Poor diversification

The 3 months correlation between LGI and National is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and National Storage Affiliates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Storage Aff 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 National Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Storage Aff has no effect on the direction of LGI Homes i.e., LGI Homes and National Storage go up and down completely randomly.

Pair Corralation between LGI Homes and National Storage

Assuming the 90 days trading horizon LGI Homes is expected to generate 1.24 times less return on investment than National Storage. In addition to that, LGI Homes is 1.57 times more volatile than National Storage Affiliates. It trades about 0.02 of its total potential returns per unit of risk. National Storage Affiliates is currently generating about 0.04 per unit of volatility. If you would invest  3,020  in National Storage Affiliates on September 20, 2024 and sell it today you would earn a total of  873.00  from holding National Storage Affiliates or generate 28.91% return on investment over 90 days.

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

LGI Homes  vs.  National Storage Affiliates

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.

National Storage Aff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Storage Affiliates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with LGI Homes and National Storage

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

The idea behind LGI Homes and National Storage Affiliates 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.