Correlation Between LGI Homes and United Homes

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

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

Diversification Opportunities for LGI Homes and United Homes

0.79

Correlation Coefficient

LGI Homes  United Homes

Poor diversification

The 3 months correlation between LGI and United is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and United Homes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Homes Group 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 United Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Homes Group has no effect on the direction of LGI Homes i.e., LGI Homes and United Homes go up and down completely randomly.

Pair Corralation between LGI Homes and United Homes

Given the investment horizon of 90 days LGI Homes is expected to generate 2.77 times less return on investment than United Homes. But when comparing it to its historical volatility, LGI Homes is 1.67 times less risky than United Homes. It trades about 0.07 of its potential returns per unit of risk. United Homes Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  423.00  in United Homes Group on October 22, 2024 and sell it today you would earn a total of  27.00  from holding United Homes Group or generate 6.38% return on investment over 90 days.

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

LGI Homes  vs.  United Homes Group

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.

United Homes Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Homes Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with LGI Homes and United Homes

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

The idea behind LGI Homes and United Homes Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.