Correlation Between LENNAR and Western Acquisition

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

By analyzing existing cross correlation between LENNAR P 525 and Western Acquisition Ventures, you can compare the effects of market volatilities on LENNAR and Western Acquisition 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 Western Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of LENNAR and Western Acquisition.

Diversification Opportunities for LENNAR and Western Acquisition

-0.21

Correlation Coefficient

LENNAR  Western Acquisition

Very good diversification

The 3 months correlation between LENNAR and Western is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding LENNAR P 525 and Western Acquisition Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Acquisition 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 P 525 are associated (or correlated) with Western Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Acquisition has no effect on the direction of LENNAR i.e., LENNAR and Western Acquisition go up and down completely randomly.

Pair Corralation between LENNAR and Western Acquisition

Assuming the 90 days trading horizon LENNAR P 525 is expected to under-perform the Western Acquisition. But the bond apears to be less risky and, when comparing its historical volatility, LENNAR P 525 is 7.7 times less risky than Western Acquisition. The bond trades about -0.06 of its potential returns per unit of risk. The Western Acquisition Ventures is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,065  in Western Acquisition Ventures on September 25, 2024 and sell it today you would earn a total of  10.00  from holding Western Acquisition Ventures or generate 0.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

LENNAR P 525  vs.  Western Acquisition Ventures

LENNAR P 525

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P 525 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Western Acquisition

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LENNAR and Western Acquisition

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

The idea behind LENNAR P 525 and Western Acquisition Ventures 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..