Correlation Between DR Horton and PulteGroup

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

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

Diversification Opportunities for DR Horton and PulteGroup

0.92

Correlation Coefficient

DR Horton  PulteGroup

Almost no diversification

The 3 months correlation between HO2 and PulteGroup is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding DR Horton and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and DR Horton 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 DR Horton are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of DR Horton i.e., DR Horton and PulteGroup go up and down completely randomly.

Pair Corralation between DR Horton and PulteGroup

Assuming the 90 days horizon DR Horton is expected to under-perform the PulteGroup. In addition to that, DR Horton is 1.08 times more volatile than PulteGroup. It trades about -0.14 of its total potential returns per unit of risk. PulteGroup is currently generating about -0.13 per unit of volatility. If you would invest  13,002  in PulteGroup on September 24, 2024 and sell it today you would lose (2,546) from holding PulteGroup or give up 19.58% of portfolio value over 90 days.

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

DR Horton  vs.  PulteGroup

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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.

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup 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 DR Horton and PulteGroup

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

The idea behind DR Horton and PulteGroup 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.