Correlation Between LGI Homes and TTW Public

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

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

Diversification Opportunities for LGI Homes and TTW Public

0.16

Correlation Coefficient

LGI Homes  TTW Public

Average diversification

The 3 months correlation between LGI and TTW is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and TTW Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TTW Public 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 TTW Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TTW Public has no effect on the direction of LGI Homes i.e., LGI Homes and TTW Public go up and down completely randomly.

Pair Corralation between LGI Homes and TTW Public

Assuming the 90 days trading horizon LGI Homes is expected to generate 1.36 times less return on investment than TTW Public. In addition to that, LGI Homes is 1.37 times more volatile than TTW Public. It trades about 0.0 of its total potential returns per unit of risk. TTW Public is currently generating about 0.01 per unit of volatility. If you would invest  26.00  in TTW Public on October 4, 2024 and sell it today you would lose (1.00) from holding TTW Public or give up 3.85% of portfolio value over 90 days.

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

LGI Homes  vs.  TTW Public

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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

TTW Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TTW Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TTW Public is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LGI Homes and TTW Public

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

The idea behind LGI Homes and TTW Public 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.