Correlation Between Cavco Industries and Meritage

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

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

Diversification Opportunities for Cavco Industries and Meritage

-0.22

Correlation Coefficient

Cavco Industries  Meritage

Very good diversification

The 3 months correlation between Cavco and Meritage is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cavco Industries and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and Cavco Industries 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 Cavco Industries are associated (or correlated) with Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of Cavco Industries i.e., Cavco Industries and Meritage go up and down completely randomly.

Pair Corralation between Cavco Industries and Meritage

Given the investment horizon of 90 days Cavco Industries is expected to generate 1.01 times more return on investment than Meritage. However, Cavco Industries is 1.01 times more volatile than Meritage. It trades about 0.17 of its potential returns per unit of risk. Meritage is currently generating about -0.02 per unit of risk. If you would invest  41,332  in Cavco Industries on August 30, 2024 and sell it today you would earn a total of  10,791  from holding Cavco Industries or generate 26.11% return on investment over 90 days.

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

Cavco Industries  vs.  Meritage

Cavco Industries

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cavco Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cavco Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Meritage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cavco Industries and Meritage

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

The idea behind Cavco Industries and Meritage 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.