Correlation Between Meritage and Legacy Housing

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

By analyzing existing cross correlation between Meritage and Legacy Housing Corp, you can compare the effects of market volatilities on Meritage and Legacy Housing 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 Legacy Housing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meritage and Legacy Housing.

Diversification Opportunities for Meritage and Legacy Housing

0.75

Correlation Coefficient

Meritage  Legacy Housing

Poor diversification

The 3 months correlation between Meritage and Legacy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Legacy Housing Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Housing Corp 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 Legacy Housing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Housing Corp has no effect on the direction of Meritage i.e., Meritage and Legacy Housing go up and down completely randomly.

Pair Corralation between Meritage and Legacy Housing

Considering the 90-day investment horizon Meritage is expected to generate 1.15 times more return on investment than Legacy Housing. However, Meritage is 1.15 times more volatile than Legacy Housing Corp. It trades about -0.02 of its potential returns per unit of risk. Legacy Housing Corp is currently generating about -0.02 per unit of risk. If you would invest  19,734  in Meritage on August 30, 2024 and sell it today you would lose (804.00) from holding Meritage or give up 4.07% of portfolio value over 90 days.

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

Meritage  vs.  Legacy Housing Corp

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.

Legacy Housing Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Meritage and Legacy Housing

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

The idea behind Meritage and Legacy Housing Corp 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.