Correlation Between MDC Holdings and PulteGroup

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

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

Diversification Opportunities for MDC Holdings and PulteGroup

0.32

Correlation Coefficient

MDC Holdings  PulteGroup

Weak diversification

The 3 months correlation between MDC and PulteGroup is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and MDC Holdings 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 MDC Holdings 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 MDC Holdings i.e., MDC Holdings and PulteGroup go up and down completely randomly.

Pair Corralation between MDC Holdings and PulteGroup

Considering the 90-day investment horizon MDC Holdings is expected to generate 0.03 times more return on investment than PulteGroup. However, MDC Holdings is 33.3 times less risky than PulteGroup. It trades about 0.22 of its potential returns per unit of risk. PulteGroup is currently generating about -0.05 per unit of risk. If you would invest  6,281  in MDC Holdings on January 19, 2024 and sell it today you would earn a total of  18.00  from holding MDC Holdings or generate 0.29% return on investment over 90 days.

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

MDC Holdings  vs.  PulteGroup

MDC Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MDC Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. 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 MDC Holdings and PulteGroup

The main advantage of trading using opposite MDC Holdings and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MDC Holdings 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 MDC Holdings 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.