Correlation Between Avery Dennison and Lennar

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

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

Diversification Opportunities for Avery Dennison and Lennar

-0.69

Correlation Coefficient

Avery Dennison  Lennar

Excellent diversification

The 3 months correlation between Avery and Lennar is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Avery Dennison and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Avery Dennison 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 Avery Dennison are associated (or correlated) with Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Avery Dennison i.e., Avery Dennison and Lennar go up and down completely randomly.

Pair Corralation between Avery Dennison and Lennar

Assuming the 90 days trading horizon Avery Dennison is expected to generate 0.02 times more return on investment than Lennar. However, Avery Dennison is 57.45 times less risky than Lennar. It trades about 0.13 of its potential returns per unit of risk. Lennar is currently generating about -0.14 per unit of risk. If you would invest  57,767  in Avery Dennison on October 3, 2024 and sell it today you would earn a total of  175.00  from holding Avery Dennison or generate 0.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Avery Dennison  vs.  Lennar

Avery Dennison

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avery Dennison are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avery Dennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Avery Dennison and Lennar

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

The idea behind Avery Dennison and Lennar 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.