Correlation Between Barratt Developments and PulteGroup

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

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

Diversification Opportunities for Barratt Developments and PulteGroup

0.41

Correlation Coefficient

Barratt Developments  PulteGroup

Very weak diversification

The 3 months correlation between Barratt and PulteGroup is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Barratt Developments plc and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Barratt Developments 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 Barratt Developments plc 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 Barratt Developments i.e., Barratt Developments and PulteGroup go up and down completely randomly.

Pair Corralation between Barratt Developments and PulteGroup

Assuming the 90 days horizon Barratt Developments plc is expected to under-perform the PulteGroup. In addition to that, Barratt Developments is 1.0 times more volatile than PulteGroup. It trades about -0.03 of its total potential returns per unit of risk. PulteGroup is currently generating about 0.03 per unit of volatility. If you would invest  9,279  in PulteGroup on September 24, 2024 and sell it today you would earn a total of  1,177  from holding PulteGroup or generate 12.68% return on investment over 90 days.

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

Barratt Developments plc  vs.  PulteGroup

Barratt Developments plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barratt Developments plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Barratt Developments and PulteGroup

The main advantage of trading using opposite Barratt Developments and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barratt Developments 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 Barratt Developments plc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.