Correlation Between National CineMedia and LGI Homes

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

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

Diversification Opportunities for National CineMedia and LGI Homes

-0.01

Correlation Coefficient

National CineMedia  LGI Homes

Good diversification

The 3 months correlation between National and LGI is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding National CineMedia and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and National CineMedia 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 National CineMedia 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 National CineMedia i.e., National CineMedia and LGI Homes go up and down completely randomly.

Pair Corralation between National CineMedia and LGI Homes

Given the investment horizon of 90 days National CineMedia is expected to generate 0.94 times more return on investment than LGI Homes. However, National CineMedia is 1.06 times less risky than LGI Homes. It trades about 0.07 of its potential returns per unit of risk. LGI Homes is currently generating about 0.0 per unit of risk. If you would invest  673.00  in National CineMedia on September 12, 2024 and sell it today you would earn a total of  61.00  from holding National CineMedia or generate 9.06% return on investment over 90 days.

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

National CineMedia  vs.  LGI Homes

National CineMedia

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National CineMedia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting primary indicators, National CineMedia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fairly strong forward indicators, LGI Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with National CineMedia and LGI Homes

The main advantage of trading using opposite National CineMedia and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National CineMedia 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.

The idea behind National CineMedia and LGI 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.