Correlation Between Meritage and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Meritage and LGI 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 Meritage and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meritage and LGI Homes, you can compare the effects of market volatilities on Meritage and LGI 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 Meritage with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meritage and LGI Homes.
Diversification Opportunities for Meritage and LGI Homes
Almost no diversification
The 3 months correlation between Meritage and LGI is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Meritage 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 Meritage are associated (or correlated) with LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of Meritage i.e., Meritage and LGI Homes go up and down completely randomly.
Pair Corralation between Meritage and LGI Homes
Considering the 90-day investment horizon Meritage is expected to generate 0.81 times more return on investment than LGI Homes. However, Meritage is 1.23 times less risky than LGI Homes. It trades about -0.05 of its potential returns per unit of risk. LGI Homes is currently generating about -0.16 per unit of risk. If you would invest 7,601 in Meritage on December 2, 2024 and sell it today you would lose (354.00) from holding Meritage or give up 4.66% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Meritage vs. LGI Homes
Performance |
Timeline |
Meritage |
LGI Homes |
Meritage and LGI Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Meritage and LGI Homes
The main advantage of trading using opposite Meritage and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meritage position performs unexpectedly, LGI 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 LGI Homes will offset losses from the drop in LGI Homes' long position.Meritage vs. TRI Pointe Homes | Meritage vs. MI Homes | Meritage vs. Beazer Homes USA | Meritage vs. Century Communities |
LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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