Correlation Between LGI Homes and Ford
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Ford 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 Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Ford Motor, you can compare the effects of market volatilities on LGI Homes and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Ford.
Diversification Opportunities for LGI Homes and Ford
Very good diversification
The 3 months correlation between LGI and Ford is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of LGI Homes i.e., LGI Homes and Ford go up and down completely randomly.
Pair Corralation between LGI Homes and Ford
Given the investment horizon of 90 days LGI Homes is expected to under-perform the Ford. In addition to that, LGI Homes is 1.19 times more volatile than Ford Motor. It trades about -0.21 of its total potential returns per unit of risk. Ford Motor is currently generating about -0.01 per unit of volatility. If you would invest 1,225 in Ford Motor on January 20, 2024 and sell it today you would lose (19.00) from holding Ford Motor or give up 1.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 97.67% |
| Values | Daily Returns |
LGI Homes vs. Ford Motor
Performance |
| Timeline |
| LGI Homes |
| Ford Motor |
LGI Homes and Ford Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Ford
The main advantage of trading using opposite LGI Homes and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford'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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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