Correlation Between LGI Homes and GM
Can any of the company-specific risk be diversified away by investing in both LGI Homes and GM 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 GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and General Motors, you can compare the effects of market volatilities on LGI Homes and GM 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 GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and GM.
Diversification Opportunities for LGI Homes and GM
Excellent diversification
The 3 months correlation between LGI and GM is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of LGI Homes i.e., LGI Homes and GM go up and down completely randomly.
Pair Corralation between LGI Homes and GM
Given the investment horizon of 90 days LGI Homes is expected to under-perform the GM. In addition to that, LGI Homes is 1.56 times more volatile than General Motors. It trades about -0.11 of its total potential returns per unit of risk. General Motors is currently generating about 0.24 per unit of volatility. If you would invest 3,506 in General Motors on January 25, 2024 and sell it today you would earn a total of 1,004 from holding General Motors or generate 28.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. General Motors
Performance |
| Timeline |
| LGI Homes |
| General Motors |
LGI Homes and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and GM
The main advantage of trading using opposite LGI Homes and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
Other Complementary Tools
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| AI Investment Finder Use AI to screen and filter profitable investment opportunities | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios |