Correlation Between Lennar and TRI Pointe

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

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

Diversification Opportunities for Lennar and TRI Pointe

0.88

Correlation Coefficient

Lennar  TRI Pointe

Very poor diversification

The 3 months correlation between Lennar and TRI is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of Lennar i.e., Lennar and TRI Pointe go up and down completely randomly.

Pair Corralation between Lennar and TRI Pointe

Considering the 90-day investment horizon Lennar is expected to under-perform the TRI Pointe. But the stock apears to be less risky and, when comparing its historical volatility, Lennar is 1.18 times less risky than TRI Pointe. The stock trades about -0.1 of its potential returns per unit of risk. The TRI Pointe Homes is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,691  in TRI Pointe Homes on December 26, 2024 and sell it today you would lose (420.00) from holding TRI Pointe Homes or give up 11.38% of portfolio value over 90 days.

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

Lennar  vs.  TRI Pointe Homes

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

TRI Pointe Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating 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 TRI Pointe

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

The idea behind Lennar and TRI Pointe Homes 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.