Correlation Between United States and Lennar

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

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

Diversification Opportunities for United States and Lennar

-0.83

Correlation Coefficient

United States  Lennar

Pay attention - limited upside

The 3 months correlation between United and Lennar is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar and United States 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 United States Steel 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 United States i.e., United States and Lennar go up and down completely randomly.

Pair Corralation between United States and Lennar

Given the investment horizon of 90 days United States Steel is expected to generate 1.5 times more return on investment than Lennar. However, United States is 1.5 times more volatile than Lennar. It trades about 0.19 of its potential returns per unit of risk. Lennar is currently generating about -0.22 per unit of risk. If you would invest  59,927  in United States Steel on December 20, 2024 and sell it today you would earn a total of  23,373  from holding United States Steel or generate 39.0% return on investment over 90 days.

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

United States Steel  vs.  Lennar

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with United States and Lennar

The main advantage of trading using opposite United States and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.