Correlation Between DR Horton and Culp
Can any of the company-specific risk be diversified away by investing in both DR Horton and Culp 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 DR Horton and Culp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DR Horton and Culp Inc, you can compare the effects of market volatilities on DR Horton and Culp 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 DR Horton with a short position of Culp. Check out your portfolio center. Please also check ongoing floating volatility patterns of DR Horton and Culp.
Diversification Opportunities for DR Horton and Culp
Poor diversification
The 3 months correlation between DHI and Culp is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding DR Horton and Culp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Culp Inc and DR Horton 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 DR Horton are associated (or correlated) with Culp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Culp Inc has no effect on the direction of DR Horton i.e., DR Horton and Culp go up and down completely randomly.
Pair Corralation between DR Horton and Culp
Considering the 90-day investment horizon DR Horton is expected to generate 1.25 times more return on investment than Culp. However, DR Horton is 1.25 times more volatile than Culp Inc. It trades about 0.02 of its potential returns per unit of risk. Culp Inc is currently generating about -0.13 per unit of risk. If you would invest 16,889 in DR Horton on August 31, 2024 and sell it today you would earn a total of 54.00 from holding DR Horton or generate 0.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
DR Horton vs. Culp Inc
Performance |
| Timeline |
| DR Horton |
| Culp Inc |
DR Horton and Culp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DR Horton and Culp
The main advantage of trading using opposite DR Horton and Culp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DR Horton position performs unexpectedly, Culp 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 Culp will offset losses from the drop in Culp's long position.The idea behind DR Horton and Culp Inc 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.Check out your portfolio center.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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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