Correlation Between Lennar and Installed Building

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

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

Diversification Opportunities for Lennar and Installed Building

0.96

Correlation Coefficient

Lennar  Installed Building

Almost no diversification

The 3 months correlation between Lennar and Installed is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Installed Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Installed Building 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 Installed Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Installed Building has no effect on the direction of Lennar i.e., Lennar and Installed Building go up and down completely randomly.

Pair Corralation between Lennar and Installed Building

Considering the 90-day investment horizon Lennar is expected to under-perform the Installed Building. But the stock apears to be less risky and, when comparing its historical volatility, Lennar is 1.45 times less risky than Installed Building. The stock trades about -0.02 of its potential returns per unit of risk. The Installed Building Products is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  18,264  in Installed Building Products on October 7, 2024 and sell it today you would lose (706.00) from holding Installed Building Products or give up 3.87% of portfolio value over 90 days.

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

Lennar  vs.  Installed Building Products

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. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with Lennar and Installed Building

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

The idea behind Lennar and Installed Building Products 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.