Correlation Between NVR and LENNAR P

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

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

Diversification Opportunities for NVR and LENNAR P

0.9

Correlation Coefficient

NVR  LENNAR P

Almost no diversification

The 3 months correlation between NVR and LENNAR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and LENNAR P B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LENNAR P B and NVR 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 NVR Inc are associated (or correlated) with LENNAR P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LENNAR P B has no effect on the direction of NVR i.e., NVR and LENNAR P go up and down completely randomly.

Pair Corralation between NVR and LENNAR P

Assuming the 90 days horizon NVR Inc is expected to generate 0.6 times more return on investment than LENNAR P. However, NVR Inc is 1.66 times less risky than LENNAR P. It trades about -0.44 of its potential returns per unit of risk. LENNAR P B is currently generating about -0.44 per unit of risk. If you would invest  885,000  in NVR Inc on September 24, 2024 and sell it today you would lose (100,000) from holding NVR Inc or give up 11.3% of portfolio value over 90 days.

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

NVR Inc  vs.  LENNAR P B

NVR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LENNAR P B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P B 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVR and LENNAR P

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

The idea behind NVR Inc and LENNAR P B 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.