Correlation Between LGI Homes and MSAD INSURANCE

Can any of the company-specific risk be diversified away by investing in both LGI Homes and MSAD 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 MSAD 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 MSAD INSURANCE, you can compare the effects of market volatilities on LGI Homes and MSAD 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 MSAD INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and MSAD INSURANCE.

Diversification Opportunities for LGI Homes and MSAD INSURANCE

0.04

Correlation Coefficient

LGI Homes  MSAD INSURANCE

Significant diversification

The 3 months correlation between LGI and MSAD is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and MSAD INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSAD INSURANCE 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 MSAD INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSAD INSURANCE has no effect on the direction of LGI Homes i.e., LGI Homes and MSAD INSURANCE go up and down completely randomly.

Pair Corralation between LGI Homes and MSAD INSURANCE

Assuming the 90 days trading horizon LGI Homes is expected to generate 1.97 times more return on investment than MSAD INSURANCE. However, LGI Homes is 1.97 times more volatile than MSAD INSURANCE. It trades about 0.04 of its potential returns per unit of risk. MSAD INSURANCE is currently generating about 0.07 per unit of risk. If you would invest  9,550  in LGI Homes on September 12, 2024 and sell it today you would earn a total of  450.00  from holding LGI Homes or generate 4.71% return on investment over 90 days.

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

LGI Homes  vs.  MSAD INSURANCE

LGI Homes

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MSAD INSURANCE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MSAD INSURANCE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, MSAD INSURANCE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LGI Homes and MSAD INSURANCE

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

The idea behind LGI Homes and MSAD INSURANCE 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.