Correlation Between Century Aluminum and Lennar

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

By analyzing existing cross correlation between Century Aluminum and Lennar 475 percent, you can compare the effects of market volatilities on Century Aluminum 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 Century Aluminum with a short position of Lennar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Aluminum and Lennar.

Diversification Opportunities for Century Aluminum and Lennar

-0.19

Correlation Coefficient

Century Aluminum  Lennar

Good diversification

The 3 months correlation between Century and Lennar is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Century Aluminum and Lennar 475 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 475 percent and Century Aluminum 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 Century Aluminum 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 475 percent has no effect on the direction of Century Aluminum i.e., Century Aluminum and Lennar go up and down completely randomly.

Pair Corralation between Century Aluminum and Lennar

Given the investment horizon of 90 days Century Aluminum is expected to generate 13.08 times more return on investment than Lennar. However, Century Aluminum is 13.08 times more volatile than Lennar 475 percent. It trades about 0.06 of its potential returns per unit of risk. Lennar 475 percent is currently generating about -0.01 per unit of risk. If you would invest  810.00  in Century Aluminum on September 25, 2024 and sell it today you would earn a total of  1,090  from holding Century Aluminum or generate 134.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.59%
Values	Daily Returns

Century Aluminum  vs.  Lennar 475 percent

Century Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Lennar 475 percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar 475 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lennar is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Century Aluminum and Lennar

The main advantage of trading using opposite Century Aluminum and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Aluminum 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 Century Aluminum and Lennar 475 percent 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.