Correlation Between Lennar and NVR
Can any of the company-specific risk be diversified away by investing in both Lennar and NVR 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 NVR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennar and NVR Inc, you can compare the effects of market volatilities on Lennar and NVR 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 NVR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and NVR.
Diversification Opportunities for Lennar and NVR
Poor diversification
The 3 months correlation between Lennar and NVR is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR 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 NVR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVR Inc has no effect on the direction of Lennar i.e., Lennar and NVR go up and down completely randomly.
Pair Corralation between Lennar and NVR
Assuming the 90 days horizon Lennar is expected to under-perform the NVR. In addition to that, Lennar is 1.41 times more volatile than NVR Inc. It trades about -0.09 of its total potential returns per unit of risk. NVR Inc is currently generating about -0.02 per unit of volatility. If you would invest 790,705 in NVR Inc on January 25, 2024 and sell it today you would lose (7,194) from holding NVR Inc or give up 0.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lennar vs. NVR Inc
Performance |
| Timeline |
| Lennar |
| NVR Inc |
Lennar and NVR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lennar and NVR
The main advantage of trading using opposite Lennar and NVR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar position performs unexpectedly, NVR 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 NVR will offset losses from the drop in NVR's long position.| Lennar vs. Vertical Aerospace | Lennar vs. Rolls Royce Holdings plc | Lennar vs. Embraer SA ADR | Lennar vs. Rocket Lab USA |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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