Correlation Between PulteGroup and North American

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

By analyzing existing cross correlation between PulteGroup and North American Construction, you can compare the effects of market volatilities on PulteGroup and North American 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 North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of PulteGroup and North American.

Diversification Opportunities for PulteGroup and North American

-0.05

Correlation Coefficient

PulteGroup  North American

Good diversification

The 3 months correlation between PulteGroup and North is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding PulteGroup and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of PulteGroup i.e., PulteGroup and North American go up and down completely randomly.

Pair Corralation between PulteGroup and North American

Considering the 90-day investment horizon PulteGroup is expected to generate 0.7 times more return on investment than North American. However, PulteGroup is 1.44 times less risky than North American. It trades about 0.12 of its potential returns per unit of risk. North American Construction is currently generating about 0.03 per unit of risk. If you would invest  6,444  in PulteGroup on January 20, 2024 and sell it today you would earn a total of  4,152  from holding PulteGroup or generate 64.43% return on investment over 90 days.

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

PulteGroup  vs.  North American Construction

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.

North American Const

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PulteGroup and North American

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

The idea behind PulteGroup and North American Construction 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .