Correlation Between Lennar and Gafisa SA

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

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

Diversification Opportunities for Lennar and Gafisa SA

0.64

Correlation Coefficient

Lennar  Gafisa SA

Poor diversification

The 3 months correlation between Lennar and Gafisa is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Gafisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gafisa SA and Lennar 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 Lennar are associated (or correlated) with Gafisa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gafisa SA has no effect on the direction of Lennar i.e., Lennar and Gafisa SA go up and down completely randomly.

Pair Corralation between Lennar and Gafisa SA

Assuming the 90 days trading horizon Lennar is expected to generate 0.35 times more return on investment than Gafisa SA. However, Lennar is 2.87 times less risky than Gafisa SA. It trades about 0.07 of its potential returns per unit of risk. Gafisa SA is currently generating about -0.05 per unit of risk. If you would invest  55,720  in Lennar on October 3, 2024 and sell it today you would earn a total of  28,633  from holding Lennar or generate 51.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	83.54%
Values	Daily Returns

Lennar  vs.  Gafisa SA

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 weak 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.

Gafisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gafisa SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Lennar and Gafisa SA

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

The idea behind Lennar and Gafisa SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.