Correlation Between Forestar and Five Point

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

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

Diversification Opportunities for Forestar and Five Point

-0.72

Correlation Coefficient

Forestar  Five Point

Pay attention - limited upside

The 3 months correlation between Forestar and Five is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Five Point Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Point Holdings and Forestar 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 Forestar Group are associated (or correlated) with Five Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Point Holdings has no effect on the direction of Forestar i.e., Forestar and Five Point go up and down completely randomly.

Pair Corralation between Forestar and Five Point

Considering the 90-day investment horizon Forestar Group is expected to under-perform the Five Point. But the stock apears to be less risky and, when comparing its historical volatility, Forestar Group is 2.61 times less risky than Five Point. The stock trades about -0.16 of its potential returns per unit of risk. The Five Point Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  402.00  in Five Point Holdings on November 27, 2024 and sell it today you would earn a total of  141.00  from holding Five Point Holdings or generate 35.07% return on investment over 90 days.

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

Forestar Group  vs.  Five Point Holdings

Forestar Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Five Point Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Point Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Five Point demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Forestar and Five Point

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

The idea behind Forestar Group and Five Point Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.