Correlation Between LGI Homes and Taylor Morrison

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

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

Diversification Opportunities for LGI Homes and Taylor Morrison

0.59

Correlation Coefficient

LGI Homes  Taylor Morrison

Very weak diversification

The 3 months correlation between LGI and Taylor is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Taylor Morrison Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taylor Morrison Home 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 Taylor Morrison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taylor Morrison Home has no effect on the direction of LGI Homes i.e., LGI Homes and Taylor Morrison go up and down completely randomly.

Pair Corralation between LGI Homes and Taylor Morrison

Assuming the 90 days trading horizon LGI Homes is expected to under-perform the Taylor Morrison. In addition to that, LGI Homes is 1.23 times more volatile than Taylor Morrison Home. It trades about -0.11 of its total potential returns per unit of risk. Taylor Morrison Home is currently generating about -0.11 per unit of volatility. If you would invest  6,500  in Taylor Morrison Home on October 6, 2024 and sell it today you would lose (550.00) from holding Taylor Morrison Home or give up 8.46% of portfolio value over 90 days.

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

LGI Homes  vs.  Taylor Morrison Home

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 fragile 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.

Taylor Morrison Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taylor Morrison 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 Taylor Morrison

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

The idea behind LGI Homes and Taylor Morrison Home 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.