Correlation Between Legacy Housing and Meritage
Can any of the company-specific risk be diversified away by investing in both Legacy Housing 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 Legacy Housing and Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legacy Housing Corp and Meritage, you can compare the effects of market volatilities on Legacy Housing 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 Legacy Housing with a short position of Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legacy Housing and Meritage.
Diversification Opportunities for Legacy Housing and Meritage
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Legacy and Meritage is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Housing Corp and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and Legacy Housing 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 Legacy Housing Corp 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 Legacy Housing i.e., Legacy Housing and Meritage go up and down completely randomly.
Pair Corralation between Legacy Housing and Meritage
Given the investment horizon of 90 days Legacy Housing is expected to generate 1.57 times less return on investment than Meritage. But when comparing it to its historical volatility, Legacy Housing Corp is 1.11 times less risky than Meritage. It trades about 0.09 of its potential returns per unit of risk. Meritage is currently generating about 0.13 of returns per unit of risk over similar time horizon. 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 | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legacy Housing Corp vs. Meritage
Performance |
| Timeline |
| Legacy Housing Corp |
| Meritage |
Legacy Housing and Meritage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legacy Housing and Meritage
The main advantage of trading using opposite Legacy Housing and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legacy Housing 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.| Legacy Housing vs. MI Homes | Legacy Housing vs. Taylor Morn Home | Legacy Housing vs. TRI Pointe Homes | Legacy Housing vs. Beazer Homes USA |
| 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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