Correlation Between Meritage and Installed Building
Can any of the company-specific risk be diversified away by investing in both Meritage and Installed Building 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 Meritage and Installed Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meritage and Installed Building Products, you can compare the effects of market volatilities on Meritage and Installed Building 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 Meritage with a short position of Installed Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meritage and Installed Building.
Diversification Opportunities for Meritage and Installed Building
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Meritage and Installed is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Installed Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Installed Building and Meritage 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 Meritage are associated (or correlated) with Installed Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Installed Building has no effect on the direction of Meritage i.e., Meritage and Installed Building go up and down completely randomly.
Pair Corralation between Meritage and Installed Building
Considering the 90-day investment horizon Meritage is expected to under-perform the Installed Building. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 1.21 times less risky than Installed Building. The stock trades about -0.08 of its potential returns per unit of risk. The Installed Building Products is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 21,648 in Installed Building Products on November 1, 2024 and sell it today you would lose (1,225) from holding Installed Building Products or give up 5.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Meritage vs. Installed Building Products
Performance |
| Timeline |
| Meritage |
| Installed Building |
Meritage and Installed Building Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Meritage and Installed Building
The main advantage of trading using opposite Meritage and Installed Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meritage position performs unexpectedly, Installed Building 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 Installed Building will offset losses from the drop in Installed Building's long position.| Meritage vs. TRI Pointe Homes | Meritage vs. MI Homes | Meritage vs. Beazer Homes USA | Meritage vs. Century Communities |
| Installed Building vs. Century Communities | Installed Building vs. MI Homes | Installed Building vs. Taylor Morn Home | Installed Building vs. TRI Pointe 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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