Correlation Between BRP and Lennar

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

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

Diversification Opportunities for BRP and Lennar

0.69

Correlation Coefficient

BRP  Lennar

Poor diversification

The 3 months correlation between BRP and Lennar is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and BRP 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 BRP Inc 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 BRP i.e., BRP and Lennar go up and down completely randomly.

Pair Corralation between BRP and Lennar

Given the investment horizon of 90 days BRP Inc is expected to under-perform the Lennar. In addition to that, BRP is 1.21 times more volatile than Lennar. It trades about -0.23 of its total potential returns per unit of risk. Lennar is currently generating about -0.01 per unit of volatility. If you would invest  17,789  in Lennar on September 2, 2024 and sell it today you would lose (350.00) from holding Lennar or give up 1.97% of portfolio value over 90 days.

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

BRP Inc  vs.  Lennar

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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. In spite of very healthy technical and fundamental indicators, Lennar is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BRP and Lennar

The main advantage of trading using opposite BRP and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP 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 BRP Inc 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.