Correlation Between MI Homes and Tile Shop

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Can any of the company-specific risk be diversified away by investing in both MI Homes and Tile Shop 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 MI Homes and Tile Shop into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MI Homes and Tile Shop Holdings, you can compare the effects of market volatilities on MI Homes and Tile Shop 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 MI Homes with a short position of Tile Shop. Check out your portfolio center. Please also check ongoing floating volatility patterns of MI Homes and Tile Shop.

Diversification Opportunities for MI Homes and Tile Shop

0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between MHO and Tile is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Tile Shop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tile Shop Holdings and MI 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 Tile Shop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tile Shop Holdings has no effect on the direction of MI Homes i.e., MI Homes and Tile Shop go up and down completely randomly.

Pair Corralation between MI Homes and Tile Shop

Considering the 90-day investment horizon MI Homes is expected to generate 1.09 times more return on investment than Tile Shop. However, MI Homes is 1.09 times more volatile than Tile Shop Holdings. It trades about 0.1 of its potential returns per unit of risk. Tile Shop Holdings is currently generating about 0.03 per unit of risk. If you would invest  7,533  in MI Homes on August 31, 2024 and sell it today you would earn a total of  8,970  from holding MI Homes or generate 119.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

MI Homes  vs.  Tile Shop Holdings

 Performance 
       Timeline  
MI Homes 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Tile Shop Holdings 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Tile Shop Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly sluggish basic indicators, Tile Shop may actually be approaching a critical reversion point that can send shares even higher in December 2024.

MI Homes and Tile Shop Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MI Homes and Tile Shop

The main advantage of trading using opposite MI Homes and Tile Shop positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MI Homes position performs unexpectedly, Tile Shop 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 Tile Shop will offset losses from the drop in Tile Shop's long position.
The idea behind MI Homes and Tile Shop Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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