Correlation Between Lennar and Black Hills

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

By analyzing existing cross correlation between Lennar 475 percent and Black Hills, you can compare the effects of market volatilities on Lennar and Black Hills 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 Black Hills. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and Black Hills.

Diversification Opportunities for Lennar and Black Hills

0.35

Correlation Coefficient

Lennar  Black Hills

Weak diversification

The 3 months correlation between Lennar and Black is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Lennar 475 percent and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills 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 475 percent are associated (or correlated) with Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of Lennar i.e., Lennar and Black Hills go up and down completely randomly.

Pair Corralation between Lennar and Black Hills

Assuming the 90 days trading horizon Lennar 475 percent is expected to under-perform the Black Hills. But the bond apears to be less risky and, when comparing its historical volatility, Lennar 475 percent is 2.6 times less risky than Black Hills. The bond trades about -0.12 of its potential returns per unit of risk. The Black Hills is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,049  in Black Hills on September 29, 2024 and sell it today you would lose (194.00) from holding Black Hills or give up 3.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Lennar 475 percent  vs.  Black Hills

Lennar 475 percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar 475 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lennar is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Black Hills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lennar and Black Hills

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

The idea behind Lennar 475 percent and Black Hills 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.