Correlation Between LGI Homes and TRI Pointe

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

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

Diversification Opportunities for LGI Homes and TRI Pointe

0.87

Correlation Coefficient

LGI Homes  TRI Pointe

Very poor diversification

The 3 months correlation between LGI and TRI is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of LGI Homes i.e., LGI Homes and TRI Pointe go up and down completely randomly.

Pair Corralation between LGI Homes and TRI Pointe

Given the investment horizon of 90 days LGI Homes is expected to generate 1.02 times less return on investment than TRI Pointe. In addition to that, LGI Homes is 1.52 times more volatile than TRI Pointe Homes. It trades about 0.11 of its total potential returns per unit of risk. TRI Pointe Homes is currently generating about 0.18 per unit of volatility. If you would invest  4,090  in TRI Pointe Homes on September 4, 2024 and sell it today you would earn a total of  242.00  from holding TRI Pointe Homes or generate 5.92% return on investment over 90 days.

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

LGI Homes  vs.  TRI Pointe Homes

LGI Homes

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TRI Pointe Homes

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TRI Pointe Homes are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, TRI Pointe is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with LGI Homes and TRI Pointe

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

The idea behind LGI Homes and TRI Pointe Homes 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.