Correlation Between First Merchants and LENNAR

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

By analyzing existing cross correlation between First Merchants and LENNAR P 5, you can compare the effects of market volatilities on First Merchants 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 First Merchants with a short position of LENNAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and LENNAR.

Diversification Opportunities for First Merchants and LENNAR

-0.4

Correlation Coefficient

First Merchants  LENNAR

Very good diversification

The 3 months correlation between First and LENNAR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and LENNAR P 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LENNAR P 5 and First Merchants 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 First Merchants 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 P 5 has no effect on the direction of First Merchants i.e., First Merchants and LENNAR go up and down completely randomly.

Pair Corralation between First Merchants and LENNAR

Given the investment horizon of 90 days First Merchants is expected to generate 11.89 times more return on investment than LENNAR. However, First Merchants is 11.89 times more volatile than LENNAR P 5. It trades about 0.08 of its potential returns per unit of risk. LENNAR P 5 is currently generating about -0.15 per unit of risk. If you would invest  3,667  in First Merchants on September 24, 2024 and sell it today you would earn a total of  422.00  from holding First Merchants or generate 11.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.38%
Values	Daily Returns

First Merchants  vs.  LENNAR P 5

First Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, First Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LENNAR P 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P 5 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Merchants and LENNAR

The main advantage of trading using opposite First Merchants and LENNAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants 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 First Merchants and LENNAR P 5 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 CEOs Directory module to screen CEOs from public companies around the world.