Correlation Between Century Communities and Lennar

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

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

Diversification Opportunities for Century Communities and Lennar

0.73

Correlation Coefficient

Century Communities  Lennar

Poor diversification

The 3 months correlation between Century and Lennar is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Century Communities and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Century Communities 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 Century Communities 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 Century Communities i.e., Century Communities and Lennar go up and down completely randomly.

Pair Corralation between Century Communities and Lennar

Considering the 90-day investment horizon Century Communities is expected to generate 1.11 times more return on investment than Lennar. However, Century Communities is 1.11 times more volatile than Lennar. It trades about -0.02 of its potential returns per unit of risk. Lennar is currently generating about -0.08 per unit of risk. If you would invest  7,260  in Century Communities on December 28, 2024 and sell it today you would lose (310.00) from holding Century Communities or give up 4.27% of portfolio value over 90 days.

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

Century Communities  vs.  Lennar

Century Communities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Century Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Century Communities is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lennar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Century Communities and Lennar

The main advantage of trading using opposite Century Communities and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Communities 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 Century Communities 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.