Correlation Between Persimmon PLC and PulteGroup

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

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

Diversification Opportunities for Persimmon PLC and PulteGroup

0.41

Correlation Coefficient

Persimmon PLC  PulteGroup

Very weak diversification

The 3 months correlation between Persimmon and PulteGroup is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Persimmon PLC and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Persimmon PLC 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 Persimmon PLC are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Persimmon PLC i.e., Persimmon PLC and PulteGroup go up and down completely randomly.

Pair Corralation between Persimmon PLC and PulteGroup

Assuming the 90 days horizon Persimmon PLC is expected to under-perform the PulteGroup. But the pink sheet apears to be less risky and, when comparing its historical volatility, Persimmon PLC is 1.01 times less risky than PulteGroup. The pink sheet trades about -0.05 of its potential returns per unit of risk. The PulteGroup is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  10,863  in PulteGroup on December 30, 2024 and sell it today you would lose (689.00) from holding PulteGroup or give up 6.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.16%
Values	Daily Returns

Persimmon PLC  vs.  PulteGroup

Persimmon PLC

Risk-Adjusted Performance

Very Weak

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

PulteGroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, PulteGroup is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Persimmon PLC and PulteGroup

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

The idea behind Persimmon PLC and PulteGroup 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 Transaction History module to view history of all your transactions and understand their impact on performance.