Correlation Between Salesforce and M/I Homes

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

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

Diversification Opportunities for Salesforce and M/I Homes

0.75

Correlation Coefficient

Salesforce  M/I Homes

Poor diversification

The 3 months correlation between Salesforce and M/I is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M/I Homes and Salesforce 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 Salesforce are associated (or correlated) with M/I Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M/I Homes has no effect on the direction of Salesforce i.e., Salesforce and M/I Homes go up and down completely randomly.

Pair Corralation between Salesforce and M/I Homes

Considering the 90-day investment horizon Salesforce is expected to under-perform the M/I Homes. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.04 times less risky than M/I Homes. The stock trades about -0.16 of its potential returns per unit of risk. The MI Homes is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  12,805  in MI Homes on December 29, 2024 and sell it today you would lose (1,975) from holding MI Homes or give up 15.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Salesforce  vs.  MI Homes

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Salesforce and M/I Homes

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

The idea behind Salesforce 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.