Correlation Between Analog Devices and MI Homes

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

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

Diversification Opportunities for Analog Devices and MI Homes

0.49

Correlation Coefficient

Analog Devices  MI Homes

Very weak diversification

The 3 months correlation between Analog and MHO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Analog Devices 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 Analog Devices are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Analog Devices i.e., Analog Devices and MI Homes go up and down completely randomly.

Pair Corralation between Analog Devices and MI Homes

Considering the 90-day investment horizon Analog Devices is expected to generate 0.89 times more return on investment than MI Homes. However, Analog Devices is 1.12 times less risky than MI Homes. It trades about -0.02 of its potential returns per unit of risk. MI Homes is currently generating about -0.02 per unit of risk. If you would invest  23,802  in Analog Devices on October 20, 2024 and sell it today you would lose (1,886) from holding Analog Devices or give up 7.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Analog Devices  vs.  MI Homes

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

MI 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. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Analog Devices and MI Homes

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

The idea behind Analog Devices and MI 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.