Correlation Between PulteGroup and Comfort Systems

Can any of the company-specific risk be diversified away by investing in both PulteGroup and Comfort Systems 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 PulteGroup and Comfort Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PulteGroup and Comfort Systems USA, you can compare the effects of market volatilities on PulteGroup and Comfort Systems 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 PulteGroup with a short position of Comfort Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of PulteGroup and Comfort Systems.

Diversification Opportunities for PulteGroup and Comfort Systems

0.77

Correlation Coefficient

PulteGroup  Comfort Systems

Poor diversification

The 3 months correlation between PulteGroup and Comfort is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PulteGroup and Comfort Systems USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comfort Systems USA and PulteGroup 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 PulteGroup are associated (or correlated) with Comfort Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comfort Systems USA has no effect on the direction of PulteGroup i.e., PulteGroup and Comfort Systems go up and down completely randomly.

Pair Corralation between PulteGroup and Comfort Systems

Considering the 90-day investment horizon PulteGroup is expected to generate 2.33 times less return on investment than Comfort Systems. But when comparing it to its historical volatility, PulteGroup is 1.17 times less risky than Comfort Systems. It trades about 0.07 of its potential returns per unit of risk. Comfort Systems USA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  28,421  in Comfort Systems USA on February 26, 2024 and sell it today you would earn a total of  5,811  from holding Comfort Systems USA or generate 20.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

PulteGroup  vs.  Comfort Systems USA

PulteGroup

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PulteGroup are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, PulteGroup may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Comfort Systems USA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Comfort Systems USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward indicators, Comfort Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PulteGroup and Comfort Systems

The main advantage of trading using opposite PulteGroup and Comfort Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PulteGroup position performs unexpectedly, Comfort Systems 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 Comfort Systems will offset losses from the drop in Comfort Systems' long position.

The idea behind PulteGroup and Comfort Systems USA 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.