Correlation Between BRIT AMER and Lennar

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

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

Diversification Opportunities for BRIT AMER and Lennar

-0.51

Correlation Coefficient

BRIT AMER  Lennar

Excellent diversification

The 3 months correlation between BRIT and Lennar is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding BRIT AMER TOBACCO and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and BRIT AMER 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 BRIT AMER TOBACCO 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 BRIT AMER i.e., BRIT AMER and Lennar go up and down completely randomly.

Pair Corralation between BRIT AMER and Lennar

Assuming the 90 days trading horizon BRIT AMER is expected to generate 2.36 times less return on investment than Lennar. But when comparing it to its historical volatility, BRIT AMER TOBACCO is 1.63 times less risky than Lennar. It trades about 0.03 of its potential returns per unit of risk. Lennar is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,026  in Lennar on October 9, 2024 and sell it today you would earn a total of  4,052  from holding Lennar or generate 44.89% return on investment over 90 days.

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

BRIT AMER TOBACCO  vs.  Lennar

BRIT AMER TOBACCO

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BRIT AMER TOBACCO are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BRIT AMER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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

Pair Trading with BRIT AMER and Lennar

The main advantage of trading using opposite BRIT AMER and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRIT AMER 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 BRIT AMER TOBACCO 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.