Correlation Between Invitation Homes and Lennar

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

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

Diversification Opportunities for Invitation Homes and Lennar

0.11

Correlation Coefficient

Invitation Homes  Lennar

Average diversification

The 3 months correlation between Invitation and Lennar is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and Invitation Homes 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 Invitation Homes 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 Invitation Homes i.e., Invitation Homes and Lennar go up and down completely randomly.

Pair Corralation between Invitation Homes and Lennar

Assuming the 90 days trading horizon Invitation Homes is expected to generate 0.25 times more return on investment than Lennar. However, Invitation Homes is 3.98 times less risky than Lennar. It trades about -0.03 of its potential returns per unit of risk. Lennar is currently generating about -0.15 per unit of risk. If you would invest  3,932  in Invitation Homes on October 9, 2024 and sell it today you would lose (43.00) from holding Invitation Homes or give up 1.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.1%
Values	Daily Returns

Invitation Homes  vs.  Lennar

Invitation Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invitation Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invitation Homes 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 uncertain 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 Invitation Homes and Lennar

The main advantage of trading using opposite Invitation Homes and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invitation Homes 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 Invitation Homes 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.