Correlation Between Acadia Realty and LGI Homes

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

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

Diversification Opportunities for Acadia Realty and LGI Homes

-0.13

Correlation Coefficient

Acadia Realty  LGI Homes

Good diversification

The 3 months correlation between Acadia and LGI is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Realty Trust and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Acadia Realty 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 Acadia Realty Trust 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 Acadia Realty i.e., Acadia Realty and LGI Homes go up and down completely randomly.

Pair Corralation between Acadia Realty and LGI Homes

Assuming the 90 days horizon Acadia Realty Trust is expected to generate 0.7 times more return on investment than LGI Homes. However, Acadia Realty Trust is 1.43 times less risky than LGI Homes. It trades about -0.34 of its potential returns per unit of risk. LGI Homes is currently generating about -0.65 per unit of risk. If you would invest  2,400  in Acadia Realty Trust on October 4, 2024 and sell it today you would lose (159.00) from holding Acadia Realty Trust or give up 6.62% of portfolio value over 90 days.

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

Acadia Realty Trust  vs.  LGI Homes

Acadia Realty Trust

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Acadia Realty Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Acadia Realty may actually be approaching a critical reversion point that can send shares even higher in February 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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Acadia Realty and LGI Homes

The main advantage of trading using opposite Acadia Realty and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Acadia Realty 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 Acadia Realty Trust 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.