Correlation Between DR Horton and Legacy Housing

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

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

Diversification Opportunities for DR Horton and Legacy Housing

-0.33

Correlation Coefficient

DR Horton  Legacy Housing

Very good diversification

The 3 months correlation between DHI and Legacy is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding DR Horton and Legacy Housing Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Housing Corp and DR Horton 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 DR Horton are associated (or correlated) with Legacy Housing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Housing Corp has no effect on the direction of DR Horton i.e., DR Horton and Legacy Housing go up and down completely randomly.

Pair Corralation between DR Horton and Legacy Housing

Considering the 90-day investment horizon DR Horton is expected to under-perform the Legacy Housing. In addition to that, DR Horton is 1.03 times more volatile than Legacy Housing Corp. It trades about -0.06 of its total potential returns per unit of risk. Legacy Housing Corp is currently generating about 0.06 per unit of volatility. If you would invest  2,480  in Legacy Housing Corp on December 27, 2024 and sell it today you would earn a total of  142.00  from holding Legacy Housing Corp or generate 5.73% return on investment over 90 days.

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

DR Horton  vs.  Legacy Housing Corp

DR Horton

Risk-Adjusted Performance

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Legacy Housing Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Housing Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Legacy Housing may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with DR Horton and Legacy Housing

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

The idea behind DR Horton and Legacy Housing Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.