Correlation Between MI Homes and American

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

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

Diversification Opportunities for MI Homes and American

0.01

Correlation Coefficient

MI Homes  American

Significant diversification

The 3 months correlation between MHO and American is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and MI Homes 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 MI Homes are associated (or correlated) with American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of MI Homes i.e., MI Homes and American go up and down completely randomly.

Pair Corralation between MI Homes and American

Considering the 90-day investment horizon MI Homes is expected to generate 5.27 times more return on investment than American. However, MI Homes is 5.27 times more volatile than American Express Co. It trades about 0.06 of its potential returns per unit of risk. American Express Co is currently generating about -0.12 per unit of risk. If you would invest  15,555  in MI Homes on September 4, 2024 and sell it today you would earn a total of  1,134  from holding MI Homes or generate 7.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

MI Homes  vs.  American Express Co

MI Homes

Risk-Adjusted Performance

4 of 100

Insignificant

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 inconsistent technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Express

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with MI Homes and American

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

The idea behind MI Homes and American Express Co 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.