Correlation Between Ford and Lennar
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Lennar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Lennar, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Lennar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Lennar.
Diversification Opportunities for Ford and Lennar
Good diversification
The 3 months correlation between Ford and Lennar is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Ford 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 Ford Motor 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 Ford i.e., Ford and Lennar go up and down completely randomly.
Pair Corralation between Ford and Lennar
Taking into account the 90-day investment horizon Ford is expected to generate 5.92 times less return on investment than Lennar. In addition to that, Ford is 1.29 times more volatile than Lennar. It trades about 0.01 of its total potential returns per unit of risk. Lennar is currently generating about 0.07 per unit of volatility. If you would invest 85,449 in Lennar on August 26, 2024 and sell it today you would earn a total of 12,862 from holding Lennar or generate 15.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.43% |
| Values | Daily Returns |
Ford Motor vs. Lennar
Performance |
| Timeline |
| Ford Motor |
| Lennar |
Ford and Lennar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Lennar
The main advantage of trading using opposite Ford and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Lennar vs. Electronic Arts | Lennar vs. Take Two Interactive Software | Lennar vs. Brpr Corporate Offices | Lennar vs. Extra Space Storage |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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