Correlation Between Light Wonder and PulteGroup

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

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

Diversification Opportunities for Light Wonder and PulteGroup

0.28

Correlation Coefficient

Light Wonder  PulteGroup

Modest diversification

The 3 months correlation between Light and PulteGroup is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Light Wonder and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Light Wonder 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 Light Wonder 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 Light Wonder i.e., Light Wonder and PulteGroup go up and down completely randomly.

Pair Corralation between Light Wonder and PulteGroup

Considering the 90-day investment horizon Light Wonder is expected to under-perform the PulteGroup. But the stock apears to be less risky and, when comparing its historical volatility, Light Wonder is 1.03 times less risky than PulteGroup. The stock trades about -0.03 of its potential returns per unit of risk. The PulteGroup is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,360  in PulteGroup on March 7, 2024 and sell it today you would earn a total of  197.00  from holding PulteGroup or generate 1.73% return on investment over 90 days.

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

Light Wonder  vs.  PulteGroup

Light Wonder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Light Wonder has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Light Wonder is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

PulteGroup

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PulteGroup are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, PulteGroup is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Light Wonder and PulteGroup

The main advantage of trading using opposite Light Wonder and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Light Wonder 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 Light Wonder 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.