Correlation Between Meritage and Lennar

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

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

Diversification Opportunities for Meritage and Lennar

0.91

Correlation Coefficient

Meritage  Lennar

Almost no diversification

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

Pair Corralation between Meritage and Lennar

Considering the 90-day investment horizon Meritage is expected to generate 1.05 times more return on investment than Lennar. However, Meritage is 1.05 times more volatile than Lennar. It trades about -0.05 of its potential returns per unit of risk. Lennar is currently generating about -0.11 per unit of risk. 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

Meritage  vs.  Lennar

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.

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.

Pair Trading with Meritage and Lennar

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

The idea behind Meritage and Lennar 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.