Correlation Between Lennar and Meritage

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Can any of the company-specific risk be diversified away by investing in both Lennar and Meritage 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 Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennar and Meritage, you can compare the effects of market volatilities on Lennar and Meritage 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 Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and Meritage.

Diversification Opportunities for Lennar and Meritage

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Lennar and Meritage is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage 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 Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of Lennar i.e., Lennar and Meritage go up and down completely randomly.

Pair Corralation between Lennar and Meritage

Considering the 90-day investment horizon Lennar is expected to generate 1.17 times less return on investment than Meritage. But when comparing it to its historical volatility, Lennar is 1.24 times less risky than Meritage. It trades about 0.09 of its potential returns per unit of risk. Meritage is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,633  in Meritage on August 28, 2024 and sell it today you would earn a total of  10,953  from holding Meritage or generate 126.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Lennar  vs.  Meritage

 Performance 
       Timeline  
Lennar 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Lennar is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Meritage 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Meritage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Meritage is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Lennar and Meritage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lennar and Meritage

The main advantage of trading using opposite Lennar and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar position performs unexpectedly, Meritage 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 Meritage will offset losses from the drop in Meritage's long position.
The idea behind Lennar and Meritage 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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