Correlation Between LENNAR and First Watch

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

By analyzing existing cross correlation between LENNAR P 5 and First Watch Restaurant, you can compare the effects of market volatilities on LENNAR and First Watch 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 First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of LENNAR and First Watch.

Diversification Opportunities for LENNAR and First Watch

-0.49

Correlation Coefficient

LENNAR  First Watch

Very good diversification

The 3 months correlation between LENNAR and First is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding LENNAR P 5 and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 5 are associated (or correlated) with First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of LENNAR i.e., LENNAR and First Watch go up and down completely randomly.

Pair Corralation between LENNAR and First Watch

Assuming the 90 days trading horizon LENNAR P 5 is expected to under-perform the First Watch. But the bond apears to be less risky and, when comparing its historical volatility, LENNAR P 5 is 7.26 times less risky than First Watch. The bond trades about -0.18 of its potential returns per unit of risk. The First Watch Restaurant is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,558  in First Watch Restaurant on September 25, 2024 and sell it today you would earn a total of  303.00  from holding First Watch Restaurant or generate 19.45% return on investment over 90 days.

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

LENNAR P 5  vs.  First Watch Restaurant

LENNAR P 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P 5 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.

First Watch Restaurant

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LENNAR and First Watch

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

The idea behind LENNAR P 5 and First Watch Restaurant 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.