Correlation Between LGI Homes and Copart

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

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

Diversification Opportunities for LGI Homes and Copart

0.15

Correlation Coefficient

LGI Homes  Copart

Average diversification

The 3 months correlation between LGI and Copart is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Copart Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copart Inc 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 Copart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copart Inc has no effect on the direction of LGI Homes i.e., LGI Homes and Copart go up and down completely randomly.

Pair Corralation between LGI Homes and Copart

Assuming the 90 days trading horizon LGI Homes is expected to generate 1.95 times more return on investment than Copart. However, LGI Homes is 1.95 times more volatile than Copart Inc. It trades about 0.17 of its potential returns per unit of risk. Copart Inc is currently generating about -0.07 per unit of risk. If you would invest  8,600  in LGI Homes on October 22, 2024 and sell it today you would earn a total of  450.00  from holding LGI Homes or generate 5.23% 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.  Copart Inc

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 comparatively stable basic indicators, LGI Homes is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Copart Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Copart Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Copart reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and Copart

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

The idea behind LGI Homes and Copart Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.