Correlation Between Smith Douglas and Forestar

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

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

Diversification Opportunities for Smith Douglas and Forestar

0.54

Correlation Coefficient

Smith Douglas  Forestar

Very weak diversification

The 3 months correlation between Smith and Forestar is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Forestar Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forestar Group and Smith Douglas 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 Smith Douglas Homes are associated (or correlated) with Forestar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forestar Group has no effect on the direction of Smith Douglas i.e., Smith Douglas and Forestar go up and down completely randomly.

Pair Corralation between Smith Douglas and Forestar

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the Forestar. In addition to that, Smith Douglas is 1.76 times more volatile than Forestar Group. It trades about -0.01 of its total potential returns per unit of risk. Forestar Group is currently generating about 0.11 per unit of volatility. If you would invest  2,480  in Forestar Group on July 31, 2025 and sell it today you would earn a total of  316.00  from holding Forestar Group or generate 12.74% return on investment over 90 days.

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

Smith Douglas Homes  vs.  Forestar Group

Smith Douglas Homes

Risk-Adjusted Performance

Weakest

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Smith Douglas is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Forestar Group

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Forestar Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Forestar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith Douglas and Forestar

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

The idea behind Smith Douglas Homes and Forestar Group 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .