Correlation Between Nasdaq and DR Horton

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

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

Diversification Opportunities for Nasdaq and DR Horton

0.2

Correlation Coefficient

Nasdaq  DR Horton

Modest diversification

The 3 months correlation between Nasdaq and HO2 is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton and Nasdaq 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 Nasdaq Inc are associated (or correlated) with DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Nasdaq i.e., Nasdaq and DR Horton go up and down completely randomly.

Pair Corralation between Nasdaq and DR Horton

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.67 times more return on investment than DR Horton. However, Nasdaq Inc is 1.5 times less risky than DR Horton. It trades about -0.02 of its potential returns per unit of risk. DR Horton is currently generating about -0.1 per unit of risk. If you would invest  7,866  in Nasdaq Inc on December 24, 2024 and sell it today you would lose (151.00) from holding Nasdaq Inc or give up 1.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Nasdaq Inc  vs.  DR Horton

Nasdaq Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

DR Horton

Risk-Adjusted Performance

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nasdaq and DR Horton

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

The idea behind Nasdaq Inc and DR Horton 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.