Correlation Between Lennar and BARRATT DEVEL

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

By analyzing existing cross correlation between Lennar and BARRATT DEVEL UNSPADR2, you can compare the effects of market volatilities on Lennar and BARRATT DEVEL 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 BARRATT DEVEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and BARRATT DEVEL.

Diversification Opportunities for Lennar and BARRATT DEVEL

0.36

Correlation Coefficient

Lennar  BARRATT DEVEL

Weak diversification

The 3 months correlation between Lennar and BARRATT is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and BARRATT DEVEL UNSPADR2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BARRATT DEVEL UNSPADR2 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 BARRATT DEVEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BARRATT DEVEL UNSPADR2 has no effect on the direction of Lennar i.e., Lennar and BARRATT DEVEL go up and down completely randomly.

Pair Corralation between Lennar and BARRATT DEVEL

Assuming the 90 days horizon Lennar is expected to under-perform the BARRATT DEVEL. But the stock apears to be less risky and, when comparing its historical volatility, Lennar is 1.05 times less risky than BARRATT DEVEL. The stock trades about -0.17 of its potential returns per unit of risk. The BARRATT DEVEL UNSPADR2 is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,039  in BARRATT DEVEL UNSPADR2 on September 24, 2024 and sell it today you would lose (104.00) from holding BARRATT DEVEL UNSPADR2 or give up 10.01% of portfolio value over 90 days.

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

Lennar  vs.  BARRATT DEVEL UNSPADR2

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 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.

BARRATT DEVEL UNSPADR2

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BARRATT DEVEL UNSPADR2 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lennar and BARRATT DEVEL

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

The idea behind Lennar and BARRATT DEVEL UNSPADR2 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.