Correlation Between M/I Homes and Diamondrock Hospitality
Can any of the company-specific risk be diversified away by investing in both M/I Homes and Diamondrock Hospitality 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 M/I Homes and Diamondrock Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MI Homes and Diamondrock Hospitality Co, you can compare the effects of market volatilities on M/I Homes and Diamondrock Hospitality 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 M/I Homes with a short position of Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of M/I Homes and Diamondrock Hospitality.
Diversification Opportunities for M/I Homes and Diamondrock Hospitality
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between M/I and Diamondrock is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Diamondrock Hospitality Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and M/I 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of M/I Homes i.e., M/I Homes and Diamondrock Hospitality go up and down completely randomly.
Pair Corralation between M/I Homes and Diamondrock Hospitality
Assuming the 90 days horizon MI Homes is expected to generate 1.34 times more return on investment than Diamondrock Hospitality. However, M/I Homes is 1.34 times more volatile than Diamondrock Hospitality Co. It trades about 0.08 of its potential returns per unit of risk. Diamondrock Hospitality Co is currently generating about 0.05 per unit of risk. If you would invest 8,650 in MI Homes on September 12, 2024 and sell it today you would earn a total of 6,380 from holding MI Homes or generate 73.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MI Homes vs. Diamondrock Hospitality Co
Performance |
| Timeline |
| M/I Homes |
| Diamondrock Hospitality |
M/I Homes and Diamondrock Hospitality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with M/I Homes and Diamondrock Hospitality
The main advantage of trading using opposite M/I Homes and Diamondrock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M/I Homes position performs unexpectedly, Diamondrock Hospitality 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 Diamondrock Hospitality will offset losses from the drop in Diamondrock Hospitality's long position.The idea behind MI Homes and Diamondrock Hospitality 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.| Diamondrock Hospitality vs. Tri Pointe Homes | Diamondrock Hospitality vs. DOCDATA | Diamondrock Hospitality vs. Pure Storage | Diamondrock Hospitality vs. MI Homes |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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