Correlation Between InPlay Oil and M/I Homes
Can any of the company-specific risk be diversified away by investing in both InPlay Oil and M/I 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 InPlay Oil and M/I Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between InPlay Oil Corp and MI Homes, you can compare the effects of market volatilities on InPlay Oil and M/I 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 InPlay Oil with a short position of M/I Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of InPlay Oil and M/I Homes.
Diversification Opportunities for InPlay Oil and M/I Homes
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between InPlay and M/I is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding InPlay Oil Corp and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M/I Homes and InPlay Oil 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 InPlay Oil Corp are associated (or correlated) with M/I Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M/I Homes has no effect on the direction of InPlay Oil i.e., InPlay Oil and M/I Homes go up and down completely randomly.
Pair Corralation between InPlay Oil and M/I Homes
Assuming the 90 days trading horizon InPlay Oil Corp is expected to under-perform the M/I Homes. But the stock apears to be less risky and, when comparing its historical volatility, InPlay Oil Corp is 1.26 times less risky than M/I Homes. The stock trades about -0.04 of its potential returns per unit of risk. The MI Homes is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 13,755 in MI Homes on September 5, 2024 and sell it today you would earn a total of 1,845 from holding MI Homes or generate 13.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
InPlay Oil Corp vs. MI Homes
Performance |
| Timeline |
| InPlay Oil Corp |
| M/I Homes |
InPlay Oil and M/I Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with InPlay Oil and M/I Homes
The main advantage of trading using opposite InPlay Oil and M/I Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InPlay Oil position performs unexpectedly, M/I 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 M/I Homes will offset losses from the drop in M/I Homes' long position.The idea behind InPlay Oil Corp and MI Homes 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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