Correlation Between LENNAR P and PulteGroup

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

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

Diversification Opportunities for LENNAR P and PulteGroup

0.91

Correlation Coefficient

LENNAR P  PulteGroup

Almost no diversification

The 3 months correlation between LENNAR and PulteGroup is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding LENNAR P B and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and LENNAR P 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 P B 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 LENNAR P i.e., LENNAR P and PulteGroup go up and down completely randomly.

Pair Corralation between LENNAR P and PulteGroup

Assuming the 90 days trading horizon LENNAR P B is expected to generate 0.89 times more return on investment than PulteGroup. However, LENNAR P B is 1.12 times less risky than PulteGroup. It trades about -0.13 of its potential returns per unit of risk. PulteGroup is currently generating about -0.13 per unit of risk. If you would invest  15,250  in LENNAR P B on September 24, 2024 and sell it today you would lose (2,650) from holding LENNAR P B or give up 17.38% of portfolio value over 90 days.

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

LENNAR P B  vs.  PulteGroup

LENNAR P B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P B 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.

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 LENNAR P and PulteGroup

The main advantage of trading using opposite LENNAR P and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LENNAR P 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 LENNAR P B 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..