Correlation Between NVR and Meritage
Can any of the company-specific risk be diversified away by investing in both NVR 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 NVR and Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVR Inc and Meritage, you can compare the effects of market volatilities on NVR 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 NVR with a short position of Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVR and Meritage.
Diversification Opportunities for NVR and Meritage
Poor diversification
The 3 months correlation between NVR and Meritage is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and NVR 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 NVR Inc 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 NVR i.e., NVR and Meritage go up and down completely randomly.
Pair Corralation between NVR and Meritage
Considering the 90-day investment horizon NVR Inc is expected to generate 0.62 times more return on investment than Meritage. However, NVR Inc is 1.62 times less risky than Meritage. It trades about 0.11 of its potential returns per unit of risk. Meritage is currently generating about 0.02 per unit of risk. If you would invest 735,613 in NVR Inc on August 24, 2024 and sell it today you would earn a total of 159,040 from holding NVR Inc or generate 21.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NVR Inc vs. Meritage
Performance |
| Timeline |
| NVR Inc |
| Meritage |
NVR and Meritage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVR and Meritage
The main advantage of trading using opposite NVR and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVR 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.| NVR vs. Beazer Homes USA | NVR vs. Century Communities | NVR vs. DR Horton | NVR vs. Everus Construction Group |
| 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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