Correlation Between Forward Industries and PulteGroup

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

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

Diversification Opportunities for Forward Industries and PulteGroup

-0.6

Correlation Coefficient

Forward Industries  PulteGroup

Excellent diversification

The 3 months correlation between Forward and PulteGroup is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Forward Industries and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Forward Industries 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 Forward Industries are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Forward Industries i.e., Forward Industries and PulteGroup go up and down completely randomly.

Pair Corralation between Forward Industries and PulteGroup

Given the investment horizon of 90 days Forward Industries is expected to under-perform the PulteGroup. In addition to that, Forward Industries is 1.63 times more volatile than PulteGroup. It trades about -0.05 of its total potential returns per unit of risk. PulteGroup is currently generating about 0.1 per unit of volatility. If you would invest  4,238  in PulteGroup on January 25, 2024 and sell it today you would earn a total of  7,038  from holding PulteGroup or generate 166.07% return on investment over 90 days.

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

Forward Industries  vs.  PulteGroup

Forward Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forward Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 May 2024.

Pair Trading with Forward Industries and PulteGroup

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

The idea behind Forward Industries and PulteGroup 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.