Correlation Between LGI Homes and Federal Agricultural

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

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

Diversification Opportunities for LGI Homes and Federal Agricultural

-0.23

Correlation Coefficient

LGI Homes  Federal Agricultural

Very good diversification

The 3 months correlation between LGI and Federal is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of LGI Homes i.e., LGI Homes and Federal Agricultural go up and down completely randomly.

Pair Corralation between LGI Homes and Federal Agricultural

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Federal Agricultural. In addition to that, LGI Homes is 1.11 times more volatile than Federal Agricultural Mortgage. It trades about -0.26 of its total potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about 0.03 per unit of volatility. If you would invest  18,868  in Federal Agricultural Mortgage on September 22, 2024 and sell it today you would earn a total of  132.00  from holding Federal Agricultural Mortgage or generate 0.7% 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.  Federal Agricultural Mortgage

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.

Federal Agricultural

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and Federal Agricultural

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

The idea behind LGI Homes and Federal Agricultural Mortgage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.