Correlation Between Gafisa SA and Lennar

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

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

Diversification Opportunities for Gafisa SA and Lennar

0.32

Correlation Coefficient

Gafisa SA  Lennar

Weak diversification

The 3 months correlation between Gafisa and Lennar is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Gafisa SA and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Gafisa SA 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 Gafisa SA 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 Gafisa SA i.e., Gafisa SA and Lennar go up and down completely randomly.

Pair Corralation between Gafisa SA and Lennar

Assuming the 90 days trading horizon Gafisa SA is expected to under-perform the Lennar. In addition to that, Gafisa SA is 2.19 times more volatile than Lennar. It trades about -0.2 of its total potential returns per unit of risk. Lennar is currently generating about -0.01 per unit of volatility. If you would invest  101,079  in Lennar on September 12, 2024 and sell it today you would lose (2,705) from holding Lennar or give up 2.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Gafisa SA  vs.  Lennar

Gafisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gafisa SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private 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. Despite somewhat strong technical and fundamental indicators, Lennar is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gafisa SA and Lennar

The main advantage of trading using opposite Gafisa SA and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gafisa SA 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 Gafisa SA 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.