Correlation Between LGI Homes and Renault SA

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

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

Diversification Opportunities for LGI Homes and Renault SA

-0.5

Correlation Coefficient

LGI Homes  Renault SA

Very good diversification

The 3 months correlation between LGI and Renault is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Renault SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renault SA 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 Renault SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renault SA has no effect on the direction of LGI Homes i.e., LGI Homes and Renault SA go up and down completely randomly.

Pair Corralation between LGI Homes and Renault SA

Given the investment horizon of 90 days LGI Homes is expected to under-perform the Renault SA. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.09 times less risky than Renault SA. The stock trades about 0.0 of its potential returns per unit of risk. The Renault SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,020  in Renault SA on October 23, 2024 and sell it today you would earn a total of  980.00  from holding Renault SA or generate 24.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	63.77%
Values	Daily Returns

LGI Homes  vs.  Renault SA

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 latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Renault SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Renault SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, Renault SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and Renault SA

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

The idea behind LGI Homes and Renault SA 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.