Correlation Between Brunswick and MI Homes

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

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

Diversification Opportunities for Brunswick and MI Homes

0.64

Correlation Coefficient

Brunswick  MI Homes

Poor diversification

The 3 months correlation between Brunswick and MHO is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Brunswick and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Brunswick 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 Brunswick are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Brunswick i.e., Brunswick and MI Homes go up and down completely randomly.

Pair Corralation between Brunswick and MI Homes

Allowing for the 90-day total investment horizon Brunswick is expected to under-perform the MI Homes. In addition to that, Brunswick is 1.07 times more volatile than MI Homes. It trades about 0.0 of its total potential returns per unit of risk. MI Homes is currently generating about 0.15 per unit of volatility. If you would invest  15,300  in MI Homes on August 31, 2024 and sell it today you would earn a total of  1,154  from holding MI Homes or generate 7.54% return on investment over 90 days.

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

Brunswick  vs.  MI Homes

Brunswick

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brunswick are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Brunswick is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

MI Homes

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Brunswick and MI Homes

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

The idea behind Brunswick and MI 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.

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.