Correlation Between Lennar and MI Homes

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

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

Diversification Opportunities for Lennar and MI Homes

0.75

Correlation Coefficient

Lennar  MI Homes

Poor diversification

The 3 months correlation between Lennar and MHO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Lennar 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 Lennar are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Lennar i.e., Lennar and MI Homes go up and down completely randomly.

Pair Corralation between Lennar and MI Homes

Considering the 90-day investment horizon Lennar is expected to under-perform the MI Homes. But the stock apears to be less risky and, when comparing its historical volatility, Lennar is 1.2 times less risky than MI Homes. The stock trades about -0.02 of its potential returns per unit of risk. The MI Homes is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  15,937  in MI Homes on August 30, 2024 and sell it today you would earn a total of  517.00  from holding MI Homes or generate 3.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Lennar  vs.  MI Homes

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.

MI Homes

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, MI Homes is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lennar and MI Homes

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

The idea behind Lennar and MI Homes 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.