Correlation Between Installed Building and PulteGroup

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

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

Diversification Opportunities for Installed Building and PulteGroup

0.97

Correlation Coefficient

Installed Building  PulteGroup

Almost no diversification

The 3 months correlation between Installed and PulteGroup is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Installed Building Products and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Installed Building 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 Installed Building Products are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Installed Building i.e., Installed Building and PulteGroup go up and down completely randomly.

Pair Corralation between Installed Building and PulteGroup

Considering the 90-day investment horizon Installed Building is expected to generate 1.06 times less return on investment than PulteGroup. In addition to that, Installed Building is 1.39 times more volatile than PulteGroup. It trades about 0.06 of its total potential returns per unit of risk. PulteGroup is currently generating about 0.09 per unit of volatility. If you would invest  5,600  in PulteGroup on October 22, 2024 and sell it today you would earn a total of  6,103  from holding PulteGroup or generate 108.98% return on investment over 90 days.

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

Installed Building Products  vs.  PulteGroup

Installed Building

Risk-Adjusted Performance

0 of 100

Very Weak

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

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical 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 Installed Building and PulteGroup

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

The idea behind Installed Building Products and PulteGroup 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..