Correlation Between M/I Homes and PulteGroup

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

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

Diversification Opportunities for M/I Homes and PulteGroup

0.92

Correlation Coefficient

M/I Homes  PulteGroup

Almost no diversification

The 3 months correlation between M/I and PulteGroup is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup 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 PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of M/I Homes i.e., M/I Homes and PulteGroup go up and down completely randomly.

Pair Corralation between M/I Homes and PulteGroup

Assuming the 90 days horizon MI Homes is expected to under-perform the PulteGroup. But the stock apears to be less risky and, when comparing its historical volatility, MI Homes is 1.13 times less risky than PulteGroup. The stock trades about -0.23 of its potential returns per unit of risk. The PulteGroup is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  12,891  in PulteGroup on November 29, 2024 and sell it today you would lose (2,779) from holding PulteGroup or give up 21.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

MI Homes  vs.  PulteGroup

M/I Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PulteGroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with M/I Homes and PulteGroup

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

The idea behind MI Homes and PulteGroup 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.