Correlation Between McGrath RentCorp and Landsea Homes

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

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

Diversification Opportunities for McGrath RentCorp and Landsea Homes

-0.03

Correlation Coefficient

McGrath RentCorp  Landsea Homes

Good diversification

The 3 months correlation between McGrath and Landsea is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding McGrath RentCorp and Landsea Homes Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Landsea Homes Corp and McGrath RentCorp 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 McGrath RentCorp are associated (or correlated) with Landsea Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Landsea Homes Corp has no effect on the direction of McGrath RentCorp i.e., McGrath RentCorp and Landsea Homes go up and down completely randomly.

Pair Corralation between McGrath RentCorp and Landsea Homes

Given the investment horizon of 90 days McGrath RentCorp is expected to generate 4.98 times less return on investment than Landsea Homes. But when comparing it to its historical volatility, McGrath RentCorp is 1.96 times less risky than Landsea Homes. It trades about 0.03 of its potential returns per unit of risk. Landsea Homes Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  494.00  in Landsea Homes Corp on June 23, 2024 and sell it today you would earn a total of  816.00  from holding Landsea Homes Corp or generate 165.18% return on investment over 90 days.

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

McGrath RentCorp  vs.  Landsea Homes Corp

McGrath RentCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McGrath RentCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Landsea Homes Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Landsea Homes Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, Landsea Homes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McGrath RentCorp and Landsea Homes

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

The idea behind McGrath RentCorp and Landsea Homes Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.