Correlation Between Barratt Developments and Lennar

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

By analyzing existing cross correlation between Barratt Developments plc and Lennar, you can compare the effects of market volatilities on Barratt Developments and Lennar 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 Barratt Developments with a short position of Lennar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barratt Developments and Lennar.

Diversification Opportunities for Barratt Developments and Lennar

0.32

Correlation Coefficient

Barratt Developments  Lennar

Weak diversification

The 3 months correlation between Barratt and Lennar is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Barratt Developments plc and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Barratt Developments 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 Barratt Developments plc are associated (or correlated) with Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Barratt Developments i.e., Barratt Developments and Lennar go up and down completely randomly.

Pair Corralation between Barratt Developments and Lennar

Assuming the 90 days horizon Barratt Developments plc is expected to generate 1.21 times more return on investment than Lennar. However, Barratt Developments is 1.21 times more volatile than Lennar. It trades about -0.07 of its potential returns per unit of risk. Lennar is currently generating about -0.17 per unit of risk. If you would invest  573.00  in Barratt Developments plc on September 24, 2024 and sell it today you would lose (68.00) from holding Barratt Developments plc or give up 11.87% of portfolio value over 90 days.

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

Barratt Developments plc  vs.  Lennar

Barratt Developments plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barratt Developments plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Barratt Developments and Lennar

The main advantage of trading using opposite Barratt Developments and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barratt Developments position performs unexpectedly, Lennar 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 Lennar will offset losses from the drop in Lennar's long position.

The idea behind Barratt Developments plc and Lennar 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.