Correlation Between Lennar and Meritage

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

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

Diversification Opportunities for Lennar and Meritage

0.91

Correlation Coefficient

Lennar  Meritage

Almost no diversification

The 3 months correlation between Lennar and Meritage is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage 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 Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of Lennar i.e., Lennar and Meritage go up and down completely randomly.

Pair Corralation between Lennar and Meritage

Considering the 90-day investment horizon Lennar is expected to under-perform the Meritage. But the stock apears to be less risky and, when comparing its historical volatility, Lennar is 1.05 times less risky than Meritage. The stock trades about -0.11 of its potential returns per unit of risk. The Meritage is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,625  in Meritage on December 28, 2024 and sell it today you would lose (592.00) from holding Meritage or give up 7.76% 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.  Meritage

Lennar

Risk-Adjusted Performance

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Meritage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meritage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Lennar and Meritage

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

The idea behind Lennar and Meritage 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.