Correlation Between Lennar and First Trust
Can any of the company-specific risk be diversified away by investing in both Lennar and First Trust 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 Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennar and First Trust Japan, you can compare the effects of market volatilities on Lennar and First Trust 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 Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and First Trust.
Diversification Opportunities for Lennar and First Trust
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lennar and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Japan has no effect on the direction of Lennar i.e., Lennar and First Trust go up and down completely randomly.
Pair Corralation between Lennar and First Trust
Considering the 90-day investment horizon Lennar is expected to generate 2.16 times more return on investment than First Trust. However, Lennar is 2.16 times more volatile than First Trust Japan. It trades about -0.04 of its potential returns per unit of risk. First Trust Japan is currently generating about -0.17 per unit of risk. If you would invest 15,964 in Lennar on January 19, 2024 and sell it today you would lose (394.50) from holding Lennar or give up 2.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lennar vs. First Trust Japan
Performance |
| Timeline |
| Lennar |
| First Trust Japan |
Lennar and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lennar and First Trust
The main advantage of trading using opposite Lennar and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar position performs unexpectedly, First Trust 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 Trust will offset losses from the drop in First Trust's long position.The idea behind Lennar and First Trust Japan 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.| First Trust vs. iShares MSCI South | First Trust vs. iShares MSCI Hong | First Trust vs. iShares MSCI Taiwan | First Trust vs. iShares MSCI Germany |
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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