Correlation Between Meritage and Deckers Outdoor

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

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

Diversification Opportunities for Meritage and Deckers Outdoor

-0.43

Correlation Coefficient

Meritage  Deckers Outdoor

Very good diversification

The 3 months correlation between Meritage and Deckers is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor and Meritage 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 Meritage are associated (or correlated) with Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of Meritage i.e., Meritage and Deckers Outdoor go up and down completely randomly.

Pair Corralation between Meritage and Deckers Outdoor

Considering the 90-day investment horizon Meritage is expected to under-perform the Deckers Outdoor. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 1.17 times less risky than Deckers Outdoor. The stock trades about -0.02 of its potential returns per unit of risk. The Deckers Outdoor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  15,988  in Deckers Outdoor on August 30, 2024 and sell it today you would earn a total of  3,189  from holding Deckers Outdoor or generate 19.95% return on investment over 90 days.

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

Meritage  vs.  Deckers Outdoor

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.

Deckers Outdoor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Deckers Outdoor disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meritage and Deckers Outdoor

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

The idea behind Meritage and Deckers Outdoor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.