Correlation Between TRI Pointe and Dream Finders

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

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

Diversification Opportunities for TRI Pointe and Dream Finders

0.06

Correlation Coefficient

TRI Pointe  Dream Finders

Significant diversification

The 3 months correlation between TRI and Dream is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding TRI Pointe Homes and Dream Finders Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dream Finders Homes and TRI Pointe 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 TRI Pointe Homes are associated (or correlated) with Dream Finders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dream Finders Homes has no effect on the direction of TRI Pointe i.e., TRI Pointe and Dream Finders go up and down completely randomly.

Pair Corralation between TRI Pointe and Dream Finders

Considering the 90-day investment horizon TRI Pointe Homes is expected to under-perform the Dream Finders. But the stock apears to be less risky and, when comparing its historical volatility, TRI Pointe Homes is 1.59 times less risky than Dream Finders. The stock trades about -0.08 of its potential returns per unit of risk. The Dream Finders Homes is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,408  in Dream Finders Homes on December 26, 2024 and sell it today you would earn a total of  9.00  from holding Dream Finders Homes or generate 0.37% return on investment over 90 days.

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

TRI Pointe Homes  vs.  Dream Finders Homes

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.

Dream Finders Homes

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dream Finders Homes are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Dream Finders is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with TRI Pointe and Dream Finders

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

The idea behind TRI Pointe Homes and Dream Finders 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.