Correlation Between Designer Brands and Meritage
Can any of the company-specific risk be diversified away by investing in both Designer Brands and Meritage 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 Designer Brands and Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Designer Brands and Meritage, you can compare the effects of market volatilities on Designer Brands and Meritage 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 Designer Brands with a short position of Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and Meritage.
Diversification Opportunities for Designer Brands and Meritage
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Designer and Meritage is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and Designer Brands 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 Designer Brands are associated (or correlated) with Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of Designer Brands i.e., Designer Brands and Meritage go up and down completely randomly.
Pair Corralation between Designer Brands and Meritage
Considering the 90-day investment horizon Designer Brands is expected to generate 6.52 times less return on investment than Meritage. In addition to that, Designer Brands is 1.46 times more volatile than Meritage. It trades about 0.01 of its total potential returns per unit of risk. Meritage is currently generating about 0.13 per unit of volatility. If you would invest 18,448 in Meritage on August 28, 2024 and sell it today you would earn a total of 1,138 from holding Meritage or generate 6.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Designer Brands vs. Meritage
Performance |
| Timeline |
| Designer Brands |
| Meritage |
Designer Brands and Meritage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Designer Brands and Meritage
The main advantage of trading using opposite Designer Brands and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands position performs unexpectedly, Meritage 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 Meritage will offset losses from the drop in Meritage's long position.| Designer Brands vs. Wolverine World Wide | Designer Brands vs. Weyco Group | Designer Brands vs. Steven Madden | Designer Brands vs. Rocky Brands |
| Meritage vs. TRI Pointe Homes | Meritage vs. MI Homes | Meritage vs. Beazer Homes USA | Meritage vs. Century Communities |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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