Correlation Between Sekisui House and Lennar

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

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

Diversification Opportunities for Sekisui House and Lennar

0.44

Correlation Coefficient

Sekisui House  Lennar

Very weak diversification

The 3 months correlation between Sekisui and Lennar is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sekisui House and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Sekisui House 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 Sekisui House 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 Sekisui House i.e., Sekisui House and Lennar go up and down completely randomly.

Pair Corralation between Sekisui House and Lennar

Assuming the 90 days trading horizon Sekisui House is expected to under-perform the Lennar. But the stock apears to be less risky and, when comparing its historical volatility, Sekisui House is 1.2 times less risky than Lennar. The stock trades about -0.06 of its potential returns per unit of risk. The Lennar is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  16,153  in Lennar on September 12, 2024 and sell it today you would lose (715.00) from holding Lennar or give up 4.43% of portfolio value over 90 days.

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

Sekisui House  vs.  Lennar

Sekisui House

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sekisui House has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Sekisui House is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 nearly stable basic indicators, Lennar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sekisui House and Lennar

The main advantage of trading using opposite Sekisui House and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sekisui House 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 Sekisui House 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.