Correlation Between Lennar and Culp
Can any of the company-specific risk be diversified away by investing in both Lennar 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 Lennar and Culp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennar and Culp Inc, you can compare the effects of market volatilities on Lennar 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 Lennar with a short position of Culp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and Culp.
Diversification Opportunities for Lennar and Culp
Poor diversification
The 3 months correlation between Lennar and Culp is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Culp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Culp Inc 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 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 Lennar i.e., Lennar and Culp go up and down completely randomly.
Pair Corralation between Lennar and Culp
Considering the 90-day investment horizon Lennar is expected to generate 1.35 times more return on investment than Culp. However, Lennar is 1.35 times more volatile than Culp Inc. It trades about 0.07 of its potential returns per unit of risk. Culp Inc is currently generating about -0.18 per unit of risk. If you would invest 17,409 in Lennar on August 27, 2024 and sell it today you would earn a total of 457.00 from holding Lennar or generate 2.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lennar vs. Culp Inc
Performance |
| Timeline |
| Lennar |
| Culp Inc |
Lennar and Culp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lennar and Culp
The main advantage of trading using opposite Lennar and Culp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar 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 Lennar 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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