Correlation Between SL Green and LGI Homes

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

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

Diversification Opportunities for SL Green and LGI Homes

-0.45

Correlation Coefficient

SL Green  LGI Homes

Very good diversification

The 3 months correlation between SLG and LGI is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SL Green Realty and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and SL Green 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 SL Green Realty 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 SL Green i.e., SL Green and LGI Homes go up and down completely randomly.

Pair Corralation between SL Green and LGI Homes

Considering the 90-day investment horizon SL Green Realty is expected to under-perform the LGI Homes. But the stock apears to be less risky and, when comparing its historical volatility, SL Green Realty is 1.49 times less risky than LGI Homes. The stock trades about -0.12 of its potential returns per unit of risk. The LGI Homes is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  10,494  in LGI Homes on September 13, 2024 and sell it today you would lose (255.00) from holding LGI Homes or give up 2.43% of portfolio value over 90 days.

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

SL Green Realty  vs.  LGI Homes

SL Green Realty

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SL Green Realty are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, SL Green 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 latest uncertain 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.

Pair Trading with SL Green and LGI Homes

The main advantage of trading using opposite SL Green and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SL Green 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 SL Green Realty 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.