Correlation Between LGI Homes and Bassett Furniture

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

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

Diversification Opportunities for LGI Homes and Bassett Furniture

-0.06

Correlation Coefficient

LGI Homes  Bassett Furniture

Good diversification

The 3 months correlation between LGI and Bassett is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture 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 Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of LGI Homes i.e., LGI Homes and Bassett Furniture go up and down completely randomly.

Pair Corralation between LGI Homes and Bassett Furniture

Given the investment horizon of 90 days LGI Homes is expected to generate 0.94 times more return on investment than Bassett Furniture. However, LGI Homes is 1.07 times less risky than Bassett Furniture. It trades about 0.0 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about -0.03 per unit of risk. If you would invest  10,049  in LGI Homes on September 17, 2024 and sell it today you would lose (64.00) from holding LGI Homes or give up 0.64% of portfolio value over 90 days.

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

LGI Homes  vs.  Bassett Furniture Industries

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. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Bassett Furniture

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LGI Homes and Bassett Furniture

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

The idea behind LGI Homes and Bassett Furniture Industries 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.