Correlation Between Meta Platforms and PulteGroup

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

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

Diversification Opportunities for Meta Platforms and PulteGroup

-0.19

Correlation Coefficient

Meta Platforms  PulteGroup

Good diversification

The 3 months correlation between Meta and PulteGroup is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and PulteGroup go up and down completely randomly.

Pair Corralation between Meta Platforms and PulteGroup

Given the investment horizon of 90 days Meta Platforms is expected to generate 0.66 times more return on investment than PulteGroup. However, Meta Platforms is 1.53 times less risky than PulteGroup. It trades about 0.1 of its potential returns per unit of risk. PulteGroup is currently generating about -0.1 per unit of risk. If you would invest  46,568  in Meta Platforms on March 7, 2024 and sell it today you would earn a total of  1,131  from holding Meta Platforms or generate 2.43% return on investment over 90 days.

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

Meta Platforms  vs.  PulteGroup

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Meta Platforms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

PulteGroup

Risk-Adjusted Performance

0 of 100

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 Meta Platforms and PulteGroup

The main advantage of trading using opposite Meta Platforms and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms 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.