Correlation Between M/I Homes and Copart

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

By analyzing existing cross correlation between MI Homes and Copart Inc, you can compare the effects of market volatilities on M/I Homes and Copart 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 M/I Homes with a short position of Copart. Check out your portfolio center. Please also check ongoing floating volatility patterns of M/I Homes and Copart.

Diversification Opportunities for M/I Homes and Copart

0.07

Correlation Coefficient

M/I Homes  Copart

Significant diversification

The 3 months correlation between M/I and Copart is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Copart Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copart Inc and M/I 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 Copart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copart Inc has no effect on the direction of M/I Homes i.e., M/I Homes and Copart go up and down completely randomly.

Pair Corralation between M/I Homes and Copart

Assuming the 90 days horizon M/I Homes is expected to generate 1.12 times less return on investment than Copart. But when comparing it to its historical volatility, MI Homes is 2.29 times less risky than Copart. It trades about 0.09 of its potential returns per unit of risk. Copart Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,020  in Copart Inc on October 23, 2024 and sell it today you would earn a total of  2,479  from holding Copart Inc or generate 82.09% return on investment over 90 days.

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

MI Homes  vs.  Copart Inc

M/I Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Copart Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Copart Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Copart reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with M/I Homes and Copart

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

The idea behind MI Homes and Copart Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.