Correlation Between Meritage and United Homes

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

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

Diversification Opportunities for Meritage and United Homes

-0.37

Correlation Coefficient

Meritage  United Homes

Very good diversification

The 3 months correlation between Meritage and United is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and United Homes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Homes Group 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 United Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Homes Group has no effect on the direction of Meritage i.e., Meritage and United Homes go up and down completely randomly.

Pair Corralation between Meritage and United Homes

Considering the 90-day investment horizon Meritage is expected to under-perform the United Homes. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 4.04 times less risky than United Homes. The stock trades about -0.02 of its potential returns per unit of risk. The United Homes Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  77.00  in United Homes Group on August 30, 2024 and sell it today you would earn a total of  21.00  from holding United Homes Group or generate 27.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.06%
Values	Daily Returns

Meritage  vs.  United Homes Group

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.

United Homes Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Homes Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, United Homes showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meritage and United Homes

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

The idea behind Meritage and United Homes Group 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.