Correlation Between Meritage and Sekisui House

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

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

Diversification Opportunities for Meritage and Sekisui House

0.74

Correlation Coefficient

Meritage  Sekisui House

Poor diversification

The 3 months correlation between Meritage and Sekisui is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Sekisui House in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sekisui House 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 Sekisui House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sekisui House has no effect on the direction of Meritage i.e., Meritage and Sekisui House go up and down completely randomly.

Pair Corralation between Meritage and Sekisui House

Considering the 90-day investment horizon Meritage is expected to generate 0.73 times more return on investment than Sekisui House. However, Meritage is 1.36 times less risky than Sekisui House. It trades about -0.03 of its potential returns per unit of risk. Sekisui House is currently generating about -0.07 per unit of risk. If you would invest  19,484  in Meritage on September 12, 2024 and sell it today you would lose (1,228) from holding Meritage or give up 6.3% of portfolio value over 90 days.

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

Meritage  vs.  Sekisui House

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.

Sekisui House

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sekisui House has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Meritage and Sekisui House

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

The idea behind Meritage and Sekisui House 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.