Correlation Between LGI Homes and Meritage
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Meritage 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 Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Meritage, you can compare the effects of market volatilities on LGI Homes and Meritage 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 Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Meritage.
Diversification Opportunities for LGI Homes and Meritage
Almost no diversification
The 3 months correlation between LGI and Meritage is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage 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 Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of LGI Homes i.e., LGI Homes and Meritage go up and down completely randomly.
Pair Corralation between LGI Homes and Meritage
Given the investment horizon of 90 days LGI Homes is expected to generate 2.71 times less return on investment than Meritage. In addition to that, LGI Homes is 1.22 times more volatile than Meritage. It trades about 0.03 of its total potential returns per unit of risk. Meritage is currently generating about 0.09 per unit of volatility. If you would invest 7,211 in Meritage on July 30, 2024 and sell it today you would earn a total of 11,073 from holding Meritage or generate 153.56% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
LGI Homes vs. Meritage
Performance |
Timeline |
LGI Homes |
Meritage |
LGI Homes and Meritage Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with LGI Homes and Meritage
The main advantage of trading using opposite LGI Homes and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Meritage 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 Meritage will offset losses from the drop in Meritage'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 |
Meritage vs. TRI Pointe Homes | Meritage vs. MI Homes | Meritage vs. Beazer Homes USA | Meritage vs. Century Communities |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
Other Complementary Tools
Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
Global Correlations Find global opportunities by holding instruments from different markets | |
Cryptocurrency Center Build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency | |
Equity Valuation Check real value of public entities based on technical and fundamental data | |
Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets |