Correlation Between National Beverage and Meritage Homes

Can any of the company-specific risk be diversified away by investing in both National Beverage and Meritage Homes 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 National Beverage and Meritage Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Beverage Corp and Meritage Homes, you can compare the effects of market volatilities on National Beverage and Meritage Homes 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 National Beverage with a short position of Meritage Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Meritage Homes.

Diversification Opportunities for National Beverage and Meritage Homes

-0.03

Correlation Coefficient

National Beverage  Meritage Homes

Good diversification

The 3 months correlation between National and Meritage is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and National Beverage 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 National Beverage Corp are associated (or correlated) with Meritage Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage Homes has no effect on the direction of National Beverage i.e., National Beverage and Meritage Homes go up and down completely randomly.

Pair Corralation between National Beverage and Meritage Homes

Assuming the 90 days horizon National Beverage is expected to generate 5.34 times less return on investment than Meritage Homes. But when comparing it to its historical volatility, National Beverage Corp is 2.9 times less risky than Meritage Homes. It trades about 0.02 of its potential returns per unit of risk. Meritage Homes is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,373  in Meritage Homes on October 11, 2024 and sell it today you would earn a total of  2,977  from holding Meritage Homes or generate 68.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

National Beverage Corp  vs.  Meritage Homes

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Meritage Homes

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Meritage Homes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Meritage Homes

The main advantage of trading using opposite National Beverage and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage position performs unexpectedly, Meritage Homes 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 Homes will offset losses from the drop in Meritage Homes' long position.

The idea behind National Beverage Corp and Meritage Homes 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .